A politician at NEDA's helm

I guess Ralph Recto couldn’t help it. When he was still chairman of the Senate economic affairs committee, he did a pretty decent job of verifying his economic pronouncements before opening his mouth. That’s why I was not overly concerned when he got the NEDA job even if he cannot honestly call himself an economist. But the politician will always be a politician and Mr Recto decided it was time to show his true colors.

The NEDA chief made a striking statement that the oil companies are overpricing their products by P8 a liter. Mr Recto offered no proofs or details of the number crunching exercise that led him to this conclusion. All he said was that NEDA simulations determined that and we are supposed to take his word for it. He then left for abroad.

Mr. Recto must be desperate for publicity (to stay ahead of wife Gov. Vilma in the opinion polls) to shamelessly violate some rules of behavior among cabinet members. He didn’t give his fellow Cabinet member, Energy Secretary Angelo Reyes, on whose turf he was intruding, a heads up. He didn’t offer his fellow Cabinet member any explanations or computations, trashing teamwork within the Cabinet.

When the embattled Energy Chief called the oil companies and representatives of NEDA to a meeting, the NEDA guy could only make a plea to just wait for Mr. Recto to return. Apparently, the technical guys at NEDA don’t have a clue either. One wonders if the shooting of a Vilma starrer abroad is more important for Mr. Recto than to explain to the nation the basis of his claims on oil prices.

As a cabinet member, Mr. Recto also contributed to national instability, given that the oil price issue is always a hot subject that could paralyze public transport at a moment’s notice. The activists couldn’t care less for a verifiable explanation of his statement. It was enough for them that the NEDA chief said that oil prices are P8 above what they should be. Mr. Recto placed public order at risk.

In the end, Mr. Recto made his boss look inutile. If it is true as her head of the economic planning agency says that the oil prices are overpriced by P8 a liter, why is she also abroad, playing tourist amidst the pyramids in Egypt instead of doing something about it? Both Ate Glue and Secretary Reyes should resign for not doing their duties. If what Mr. Recto did was a simple publicity stunt, why is Ate Glue allowing a cabinet member to grandstand at her expense?

I do not have the details that go into the computation of oil prices but there is a blog being written by a former colleague at the PNOC that does that (http://www.energytechnologyexpert.com). I checked it out and was not surprised to find out that he couldn’t find the basis for Mr. Recto’s claim. It was Engr. Marcial Ocampo’s job to crunch such numbers at DOE during our watch, and is now an independent energy consultant. On this particular matter, I have no reason to doubt his conclusions.

Engr. Ocampo observed that his calculations show “even if the oil company itself does not have any gross margin (meaning it only collects the cost of the imported product plus all government taxes and logistic costs of bringing the product to our shores and retail stations and pays its dealers and haulers and insurers), the difference between the actual pump price and the calculated pump price without oil company margin or profit is no where close to the P8/liter mentioned by the NEDA Secretary.”

Engr. Ocampo explains that the main determinant of our local prices is the Singapore Posted Price for Finished Oil Products. The oil major Caltex and the other oil minors like Flying V, SeaOil, Total, Jetti, UniOil, Eastern, PTT import their products from the Asian Region and thus use the Singapore Posted Price for finished products, e.g. MOPS.

Importations, he explained, are usually good for 1-2 weeks demand of finished products while for the big refiners, their crude/product supply is usually good for 1-2 months demand. That is why domestic pump prices in the Philippines are usually adjusted on weekly intervals to avoid significant over and under recoveries that would balloon to huge losses or profits if not liquidated immediately within the week.

Hence, he pointed out, the main determinant of domestic prices is the incremental product imports based on the Singapore Posted Prices and not very much on the Dubai Crude Oil Posted Prices. Our local prices need to be aligned with the region, he explains, in order to avoid smuggling of finished products and consequent loss and non-payment of much needed import duties and taxes.

We violated this rule when we were still regulating fuel prices. We kept our diesel prices low through heavy subsidies. It had the effect of also making our diesel prices much lower than the prevailing prices in the region. What happened was that there were those who would either smuggle or ship out domestic diesel to our neighboring countries. We ended up subsidizing the diesel the Indonesians, Malaysians and Thais were using. For so long as the price differential is more than the cost of transporting the product there is enough incentive to the smuggler or marketer.

On the other hand, as was the case with gasoline where our domestic price was perceived to be too high due to excessive taxation, we also ended up with the problem of rampant smuggling of the product into the domestic market by unscrupulous traders who made outrageous profits by evading taxes. That also seems to be what is generally happening now with gasoline.

Either way, the Philippine government ends up losing needed tax revenues, the oil business does not become a level playing field, investments to ensure long term supply would not be made, and the country will be more than ever be vulnerable to the effects of the global financial crisis and the volatility of the oil market.

Engr. Ocampo’s price forecast was P0.67/liter upward adjustment, but the actual was only P0.50/liter. “As calculated in my Bulletin 3 dated 22 April 2009, the calculated price of unleaded 93 RON gasoline and low sulfur diesel LSD (0.05 percent sulfur) are P33.69/liter and P25.45/liter respectively for the period April 10-21, 2009. Compared with the previous period of April 6-9,2009, the respective prices were P33.02/liter and P25.54/liter.

“This led to my forecast upward adjustment of P0.6710/liter for unleaded 93 RON gasoline (actual price increase of crude oil refiners Petron and Shell was a P0.50/liter increase, perhaps due to the practice of rounding off increases to multiples of 0.50, 1.00, 1.50 and 2.00 P/liter).

“On the other hand, my forecast was a downward adjustment of P0.0894/liter for low sulfur diesel (actual price remained unchanged by refiners Petron and Shell).”

Engr. Ocampo’s calculations were based on actual market prices. We have yet to see the basis of Mr Recto’s simulations. Between the technocrat and the politician, it is obvious who I find more credible.

Pac Man

Rosan Cruz passed on this one on the Pac Man.

FLASH Breaking News… Pacquiao was disqualified by the Nevada Athletic Commission! Drugs found in his urine include Alaxan, Circulan and Robitussin at may Datu Puti pa!

Boo Chanco’s e-mail address is [email protected]