OPSF: A poison not a potion

Last week’s transport strike that turned out to be a dud was a happy development. It simply means that the Filipinos, in general, have realized the futility of such option. Yes, while we still saw and heard cause- oriented groups’ rhetoric and oppositionists’ tirades, these seem to no longer have the usual sting that used to send hapless citizens shiver in fear. The main reason for the strike - oil price increases have remained unabated. 

While the labor sector’s and the consuming public’s pleas were all reasonable, as usual, cause oriented groups and government critics (though consumers themselves) were seemingly riding on.   They were castigating the administration no end, trying to paint before us the government’s ineptness in handling this crisis. As usual, they amplified or exaggerated it to gain sympathy and advance their own political or selfish causes. Unfortunately, such scene will persist in the days to come as the resolution of this menacing development shall remain elusive. 

Indeed, disagreements are just normal. Truth to tell, depending on the person’s preferences, views on issues of common concerns will always be diverse. Despite these diversities, however, some differences are mended and bitter fights are ending in a truce. However, other disagreements are just so deeply rooted that even a tiny room for compromises is virtually unavailable. Undeniably, biblical and ideological differences are harder to resolve. The roots of other conflicting views, however, are just too trivial and are simply borne out of slight misunderstanding and huge pride.

Undeniably, these ideologues and political grandstanders (as election year is drawing near) are taking advantage of this situation to gain media mileage. Regardless of how publicity hungry they may be, however, prudence still dictate that they should first look into some facts before agitating the public to take drastic actions.

Likewise, our country is in the midst of a lot of conflicts. Some are offshoots of political maneuverings while others are plain and simple misunderstandings due to everyone’s sincere efforts to get out of the economic quagmire we are in today.  

Admittedly, the most dominating and most debilitating word today is crisis. Be it in food, power or water, this is the most famous word every tongue speaks. These crises are prevalent, felt and withstood till near submission by every citizen. Quite frankly, unless we become masochists, we will never get the feeling of contentment from the consequences of these menaces. In fact, as we speak, the oil crisis has worsened and is helplessly felt all over the country.  

Foremost in every Filipino’s agenda is the retail price of oil products that have remained relatively high.   More often, adding insult to this ongoing drama are the insensibilities of some sectors in not giving even a nominal reduction in the prices of products or services should there be token reduction made by the oil retailers. Pressured by the general public, they found an easy and very convenient excuse. They tried to divert public attention to the oil retailers who, they claimed, have formed a cartel and pegged oil prices exorbitantly high for their own good.

It can be recalled that 2008 saw the rise of oil prices to US$147.00 per barrel in July. Knowing fully well that it was just at US$70 per barrel in August, 2007, simple math tells us that it doubled in less than a year. Then, we were witnesses on how it plummeted to US$37.00 per barrel towards the end of 2008. Today, however, oil prices are breaching the US$100 per barrel barrier. As economic indicators in the USA are getting better as days unfold, it might just go up with the expected surge in demand for oil from reopened factories and rehired (employees) citizens.

With the accusing fingers pointing at them, oil retailers passed on the blame to the lawmakers and the executive department (though VP Binay, a traditional politician that he is, is for the lifting of VAT as a publicity stunt) for their stubbornness in not lifting the Value Added Tax (VAT) on oil. Clearly, it has become a vicious cycle of passing on blames among selfish members in a circle of opportunists.

Apart from this endless exercise of buck passing, however, some sectors presented a different approach. They wanted a more serious effort from lawmakers of abolishing the Oil Deregulation Law. The main argument, oil companies have formed a cartel and are dictating the prices. In effect, such proposal means that we have to go back to the controlled era where prices are fixed and an Oil Price Stabilization Fund (OPSF) is set up.  

While there is a big possibility that this proposal will gather steam and maybe popular in the end, its popularity may not be at all the solution we need. It can be recalled that the OPSF was set up in 1984. Then, as part of the policy, the OPSF was supposed to help protect consumers from fluctuations in product prices while providing refiners with adequate margins. In 1996, the OPSF was running a large deficit and was financed by taxpayers’ money to the tune of US$40 million a month. Knowing fully well that crude oil is the Philippines’ largest single import (which accounts for 7 percent of the country’s total import bill) the amount involved was just too material.   Then, President Ramos’ economic and finance ministers had seen enough. There was then a need to stop the bleeding. Thus, on April, 1998, President Fidel V. Ramos signed Republic Act 8479 otherwise known as the “Downstream Oil Industry Deregulation Act of 1998”. Said Act was envisioned “to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally-clean and high-quality petroleum products.” Same Act also provides that the “State shall promote and encourage the entry of new participants in the downstream oil industry, and introduce adequate measures to ensure the attainment of these goals.”

To attain this goal procedurally under the Deregulation Act, domestic fuel prices will be adjusted automatically based on the Singapore Import Parity, an average of costs at Singapore refineries, and in line with international prices. Singapore Import Parity (SIP) refers to the deemed landed cost of a petroleum product imported from Singapore at a free-on-board price equal to the average Singapore Posting for that product at the time of loading. Singapore posting on the other hand refers to the price of petroleum products periodically posted by oil refineries in Singapore and reported by independent international publications. Clearly, therefore, a base data is supposedly at hand for price determination purposes. Palpably, it is purely mathematical and is therefore an exact science. So that, arguments on prices are issues that are not suppose to surface.

Furthermore, while the general public accuses these oil companies of forming a cartel, the same act explicitly prohibits this practice. The Act defines cartelization as “any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins.”

Obviously, therefore, the law is good. However, some unscrupulous businessmen are just toying with it and have unduly taken advantage of the general public’s helplessness. Unfortunately too, while the Act requires periodic submission of reports, the same Act does not explicitly authorize the Department of Energy or any government agency to examine their books of accounts or financial records like external auditors do. 

Generally, therefore, the Act’s (R.A. 8479) abolition is not a potion. Worst, reestablishing the OPSF may even be a poison.

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