RP better prepared to cope with high oil prices than its Asian neighbors — Lotilla

The Philippines appears to be in a better position to cope with surging high oil prices compared to neighboring countries in Asia such as Indonesia and India which are set to raise their fuel prices and lift their subsidies.

Reports noted that India last week jacked up prices of its diesel and gasoline products by seven percent as their state oil companies cried of ballooning losses, amounting to some $9.1 billion, because of the subsidies.

Indonesia has also announced that it will reduce fuel subsidies by October this year after reporting huge losses of about $7 billion.

Malaysia also reported it has spent some $1.5 billion in subsidies for diesel alone and Thailand $2 billion for gasoline and diesel.

"Neighboring countries in Asia have realized that imposing subsidies on fuel prices are not sustainable and greatly threatens their economies due to the huge losses incurred and the adverse impact on their currencies," noted Energy Secretary Raphael P.M. Lotilla.

"With the removal of subsidies, the price adjustments these countries have to make are higher than the price adjustments in the Philippines as they have to make up for the price differential between the subsidized prices and actual market prices," he added.

Moreover, the move to increase prices has been anticipated and the adjustments were less than what were needed to bring their domestic prices in line with the international prices. But they added it was a step in the right direction to bring these countries’ economies back in shape as their respective currencies depreciated. In fact, it was reported that Indonesia’s rupiah has slipped 11 percent against the US dollar.

"I hope that further calls from some sectors to impose any form of subsidy on fuel prices in the country will end taking into account the experiences of other countries and the difficult times they face now compared with what we are experiencing here in the Philippines," Lotilla added.

The serious effects of imposing fuel subsidies were emphasized in the report of the Independent Review Committee (IRC) commissioned to undertake the review of the Downstream Oil Industry Deregulation Law.

The IRC report disclosed that about P18 billion in subsidies will have to be coughed up if diesel were pegged at P18.70 per liter when the Land Transportation Franchising and Regulatory Board (LTFRB) granted fare increases in May 2004.

The IRC added that subsidies have negative effects as these distort prices and discourage fuel conservation and efficiency at a time of very high prices.

"Subsidizing oil prices does not work in an era of rising crude prices because it would entail government resources that it cannot afford," the IRC report said.

The IRC report also noted that the Oil Price Stabilization Fund (OPSF) imposed in the early 1990s to absorb increases in world oil prices and to minimize frequent price adjustments is no longer applicable and should not even be considered at this time.

"Providing government subsidy will effectively displace national funds for other equally important projects," it said.

Despite the skyrocketing prices of oil in the world market, the Philippines’ pump prices are still considered the lowest in the region. In particular, the price of unleaded gasoline in the local market is at P33.43 per liter compared to the P94.06 per liter in Hong Kong and P36.38 per liter in Thailand. For diesel, the retail price in the country is P30.95 per liter against P58.41 in Hong Kong and P32.07 in Thailand.