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A second look at oil deregulation

On Feb. 10, 1998 Republic Act 8479, or the Oil Deregulation Law, was passed by the 10th Congress. Under this law the state shall liberalize and deregulate the downstream oil industry, with the aim of boosting the petroleum’s competitive market and promote the influx of more new players in the industry. The Department of Energy was entrusted a three-percent tariff coupled with the responsibility of monitoring violations of “fair trade practice, safety requirements or environmental laws” together with the Department of Trade and Industry. On paper , the law seeks to achieve “a truly competitive market” that runs with fair prices and a suitable supply of environmentally-clean and high quality petroleum products. In practice, however, this has not been the case. For this reason, the oil deregulation law has become one of the most contentious laws in the country since its enactment. Its constitutionality had been the subject of several petitions at the Supreme Court and many legislators, including this representation (HB 00347 – An act regulating the downstream oil industry), have filed bills to amend or repeal it. One of the more enduring controversial issues up to now is overpricing. Instead of achieving competitive prices for the benefit of the consuming public, unabated and “questionable increases” in petroleum prices have been a public outcry in the past 15 years. In February 1998, the month the current oil deregulation law was enacted, the pump price of gasoline was P12.62. As of the first week of this month, official DOE records show the retail price of gasoline in the NCR ranged from P48.65 to P54.64 per liter, which is more than 300 percent higher than its 1998 prices. What exacerbates this and continues to fuel negative speculation is that the public has no way of knowing whether the price adjustments are reasonable or not, even based on the supposed factors that affect local prices, namely global oil prices and the rate of foreign exchange. Our consumers are forced to unconditionally accept whatever explanation the oil firms and the Department of Energy give for the price increases. Deregulation law notwithstanding, this representation is of the firm opinion that the public needs to know the origin of petroleum imports -- the volume and the price at which they are bought, together with other details that are “hidden” from the consumers under the current set-up of decentralized importation. In this, the government has a primary role to play, being accountable to the people. Moreover, initiatives in this direction will also make significant headway in addressing another national issue gravely affecting the industry and the Filipino consumers in general --- that of oil smuggling. The country is especially vulnerable because while we have one of the most oil intensive economies in the Asia, we are also one of the most import-dependent for petroleum. Pilipinas Shell and Petron Corporation have recently made public that the government is losing P30 billion to P40 billion in revenues a year due to oil smuggling, a staggering amount which is comparatively bigger than what the government expects to generate this year from higher taxes on sin products. Ramon S. Ang of Petron Corporation, the country’s largest oil company, claimed that smuggled oil products account for at least a third of the total volume sold in the market, adding that about one out of every three litters of gasoline or diesel sold in the Philippines is smuggled. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12 percent value-added tax and the excise tax. This allows some retailers to sell cheap oil. Customs sources confirmed as well claims by Shell and other players in the oil industry that petroleum products are smuggled into the country. What is most sure is that smuggling remains unabated and that it has even worsened under this administration. This administration needs to buckle down and find ways to address this urgent concern within the framework of deep reforms in the industry to curb possible price abuses and improve efforts against tax leakages. A study done by the National Economic and Development Authority last year estimated individual tax leakages to reach at least P35.69 billion a year from 2011 to 2016 proving that bureaucratic corruption, inefficiency, and wastage continue to deprive government of potential revenues under this administration. There are currently more than 600 players in the downstream oil industry. One option we would like to propose is for the government to impose safety nets and control mechanisms within the purview of the oil deregulation law, to include limiting industry players to the top five honest taxpaying oil players (i.e., Petron, Shell, Chevron, Total plus another independent player). This will effectively limit the channels of opportunity for smugglers and present a more wieldy structure to plug tax leaks.
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