Who's breaking the law?

It was reported that world price of crude oil has fallen below $35 a barrel last week in Asia amid a deepening global slowdown. Analysts calculated oil prices have fallen 75 percent since peaking at $147.27 in July last year. After we reeled from this oil price crisis last year, the credit crunch in the US sub-prime mortgage sector has mushroomed into the worst global economic downturn in recent history.

The global financial crisis now threatens to unleash its full impact to us here in the Philippines. So it dreads me to think for us Filipinos to bear both at the same time the global financial squeeze combined with another weekly round of gasoline price increases. The return of weekly gasoline price increases in our country ironically comes at a time while crude oil prices in the world market continue to decline.

Thus, it was a relief to hear there is now a realization from both Malacañang and Congress on the urgent need to really revisit RA 8479, otherwise known as the Oil Deregulation Law. More than 10 years ago since it became a law, Press Secretary Cerge Remonde announced the Palace is amenable to discuss the possible review of the Oil Deregulation Law.

Taking up the official signals from the Palace, Speaker Prospero Nograles supported such a review of the Oil Deregulation Law. The Speaker even raised the possibility that it could be either amended or repealed. Nograles rightly noted the renewed fuel price increases in our country “make economic recovery even more difficult” and it’s only proper that they in Congress should take a second look at this law.

Over the decade-long existence of the Oil Deregulation Law, there have been calls from lawmakers for the review and amendment or repeal of RA 8479. While such populist proposals were initiated in the past, there were no serious efforts, though, to push it to the next level of the legislative mills in both chambers of Congress.

It was signed into law on Feb.10,1998 by former President Fidel V. Ramos and paved the way for the privatization of the former wholly-government-owned Petron. It effectively removed the government’s regulation of the country’s downstream oil industry as it abolished at the same time the Oil Price Stabilization Fund (OPSF), or the state-run subsidy for consumers of gasoline and other oil products.

Since then, the government succeeded to de-politicize the price-setting of gasoline and other refined petroleum products. It left the prices to be determined by the market forces or the law of supply and demand. The oil industry players, led by the “Big 3,” – Petron, Pilipinas Shell and Caltex Philippines (now called Chevron), were left on their own devices to compete among themselves. The free market in the downstream oil industry has obviously worked as it gave birth to several small players now like Unioil, Total, Flying V, SEAoil, PTT, etc.

Anyway, that was the spirit and intent of the Oil Deregulation Law. However, the spirit of competition has been lost somewhere along the way through these years. This became too apparent when both the major and small players came up with their uniform pump prices of gasoline.

As mandated by RA 8479, 50 percent of PNOC must be sold to a “strategic partner.” The Saudi Arabian-owned Aramco qualified and won the bid to buy half of the government’s stakes in Petron. The remaining 40 percent were kept by the government while the balance of 10 percent were sold  through initial public offering. Petron has remained as the country’s largest oil company.

The same law mandated that the State must see to it that Petron must act as the “price leader” to actively influence fuel prices as added safeguard measure to protect the Filipino oil consumers. With such expressed provisions of this law, it behooves us to wonder how the government was able to sell last year its stakeholdings at Petron.

It all started when Aramco, from out of the blue, made the sudden, unexpected decision to sell its Petron stake middle of last year. England’s Ashmore Group, which is engaged in stock trading, bought the Aramco shares. Subsequently, Ashmore also bought the shares of the government in Petron worth more than $1 billion. Ashmore turned around and agreed to sell their stakes in Petron to beer and food conglomerate San Miguel Corp. (SMC) headed by Marcos crony-businessman Eduardo “Danding” Cojuangco.

This deal naturally incurred the attention of the Philippine Stock Exchange (PSE) to question it since Petron and SMC are corporations both traded on the stock market. This did not deter the large-scale acquisition binge of SMC. Recently, SMC also bought the shares of the Government Service Insurance System in the Lopez-owned Manila Electric Co. (Meralco). The SMC Group has been divesting from its major business operations to finance its going into big-time energy ventures like Petron and Meralco. In fact, SMC sold 43.25 percent of its beer interest to Kirin of Japan.

Whoever now owns Petron should be a major concern to consider over renewed calls to review the Oil Deregulation Law. If the government was able to unload its ownership shares in Petron, did it not violate the spirit and intent of RA 8479?

Speaking of violations of the law, Department of Justice (DOJ) Secretary Raul Gonzalez ordered last week the investigation of the “Big 3” as well as Total for possible violations of RA 8479. Gonzalez ordered his agency’s task force to focus on Sections 11 and 12 of RA 8479.

Section 11 prohibits cartelization and predatory pricing. Cartelization means “any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets.”

On the other hand, predatory pricing “means selling or offering to sell any oil product at a price below the seller’s or offeror’s average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market.”

Gonzalez issued the order after the Consumer and Oil Price Watch came out with whole page advertisements in major national dailies led by The STAR, urging the DOJ Secretary and Department of Energy (DOE) Secretary Angelo Reyes to perform their regulatory functions under the Oil Deregulation Law. But who’s breaking the law?