Fall guy

Executive Order 839 has now been lifted and we are left to deal with its unhealthy consequences.

The controversial measure imposing price controls on fuel and other essential commodities in the areas affected by calamities brought forth huge losses for retailers, caused suspension of orders for imported supplies and invited the imminent danger of shortages. It is always futile to control prices at the retail end without the ability to influence prices at the source.

As things stand, we have among the lowest retail prices for fossil fuels anywhere in the world. But that has not stopped oil prices from being politicized. Every populist rabble-rouser seizes every oil price adjustment as an opportunity to score political points by blaming government, vilifying the oil companies and conjuring up every possible conspiracy to cause public misery.

Over the last couple of months, as the global economy showed signs of recovery, oil prices began to climb. For weeks, crude oil prices hovered around $80 per barrel. Rising crude prices, naturally, reflected in domestic pump prices.

Soon enough, politicians began trying to make hay out of the misfortune. Senators Mar Roxas and Francis Escudero, former NEDA chief Ralph Recto with his bizarre calculations about what oil prices should be, Rep. Roilo Golez and the usual suspects from the left joined in chorus. They were chiding government for allowing oil prices to rise in the face of the great calamity that has befallen our people — as if it was possible, or even wise, for government to intervene.

Absurd as the populist rabble-rousers were, they were scoring political points nevertheless. Many Filipinos continue to entertain the superstition that government can control oil prices even as domestic Philippine demand constitutes only a tiny fraction of global oil demand. We import over 95% of our oil needs and we are completely dependent on the turns of the world market for the product.

Faced with the populist chorus, some people around the President put together an executive order imposing a price freeze on the excuse of a state of calamity persisting. The price freeze was, from every angle, a public relations move that some deemed to be a net positive even as it courted the perils of shortages.

The move might have neutralized the cheap public relations points being scored by populist politicians. But the price freeze damaged investor confidence. If government can undertake patently unwise measures for short-term political effect, other unwise measures harmful to the market may happen again, when political expediency so dictates.

Caught in the middle of this public relations play was Energy Secretary Angelo Reyes. The agitators vilified him, picturing him in the public mind as “lawyering” for the oil companies. The price freeze imposed by the Palace put him in the tough position of having to manage supply security of a vital commodity.

That was most unfair.

As the senior official in charge of all energy concerns, Reyes’ first duty is to uphold the law. The law, in the case of fuels, is the Oil Industry Deregulation Act.

Unless our legislators go the economically suicidal path of returning to nationalization of the oil industry, deregulation allows market forces to set fuel prices. Because we are an oil importing economy, any attempt to intervene in pricing can only happen if it is supported by a willingness to subsidize fuel costs, a costly proposition as we have seen before.

No one has yet accused Angelo Reyes of being an economist. But he understood fairly well the consequences of imposing a price freeze on oil products: oil companies will rather not import and sell if doing these will result in humungous losses.

The price freeze is discriminatory. It penalizes the companies that maintain refining capacity and benefits those that don’t because they directly import finished products. Maintaining refining capacity, even as it is more expensive, has some value to our energy security.

Too, government intervention in pricing forces oil companies to reduce their stockpiles to a minimum in order to avoid inventory losses, given the volatility in the global oil market. That too, is dangerous for our energy security.

Remember what they said when we had to endure long brownouts: no electricity is costlier than expensive electricity. The same may be said of oil: nothing harms our economy more than a serious oil shortage.

Reyes, like presidential economic adviser Joey Salceda, did not agree with the price freeze. But while Salceda publicly disagreed with the measure, Reyes quietly went about his duties, like a good soldier, trying his best to avert supply shortages.

The price freeze was like playing Russian roulette with the economy. At any point, shortages could happen and the economy would grind to a halt.

While lobbying quietly for a quick lifting of EO 839, Reyes tried to keep the oil industry going. That was not easy.

Total Philippines, for instance, has lost hundreds of millions since it established operations here. But company executives say they are in here for the long haul.

The smaller players are most vulnerable to the price freeze. They have small inventories and an even smaller capital base. They cannot go on losing money in a grand scale because retail prices are frozen. Shortly after the price freeze was imposed, banks began cutting credit lines to oil companies because of the great risk of loss.

If the negative effects of the price freeze prove minimal over the next few days, it is because enough sane voices worked hard for its early lifting. Credit must also be given Angelo Reyes for doing his thankless job well in the most adverse conditions.