Between a rock and a hard place

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The Philippines had the second-highest increase in petroleum prices across most of Southeast Asia.

According to a report from The Business Times of Singapore quoting data from Global Petrol Prices, prices rose the most in Myanmar between Feb. 23 and March 23 at 55.4 percent, followed by the Philippines (54.2 percent) and Cambodia (52.8 percent).

In other parts of the region, Laos’ petrol prices rose by 32.9 percent on March 23 compared to Feb. 3, while that of Vietnam increased by 31.8 percent; Malaysia, 28.7 percent; Singapore, 20.5 percent; Thailand, 8.7 percent and Indonesia, 2.8 percent.

Significant from the report is the fact that both Thailand and Indonesia have managed to relatively keep their fuel prices steady.

A news report from Khasod English of Thailand published on March 27 explained why the country’s fuel prices increased by just six baht.

It explained that for decades, Thailand has quietly run one of the most ambitious fuel price systems in Southeast Asia, a government-managed shock absorber called the Oil Fuel Fund, which was built to do one thing: stop global oil market chaos from hitting Thai consumers’ wallets at the pump. When crude prices spike, the fund steps in and covers the gap, keeping Thai pump prices artificially stable. When prices calm down, it recoups the money through small levies on every liter sold.

But price smoothing does not come cheap. The report revealed that the Oil Fuel Fund was burning about 2.59 billion baht  per day to keep prices at the old capped rate or around  80 billion baht per month or roughly $2.44 billion. The Oil Fuel Fund Executive Committee decided to slash subsidies, accepting the price correction and preserving what’s left of the fund’s liquidity so that the six baht hike was not a political choice but a mathematical one, the report said.

The same report, however, noted that the Oil Fuel Fund was a delay tactic and not a permanent discount and that while it can delay higher prices, it cannot prevent them so the question is not whether prices will stay elevated but how often and how abruptly the next adjustment will come.

In the case of Indonesia, it has been reported that the country has maintained stable fuel prices by implementing government subsidies, freezing price adjustments for both subsidized and non-subsidized fuels, introducing mandatory energy rationing and prioritizing maintaining public purchasing power.

The Indonesian government provides compensation payments to state-owned company Pertamina to prevent it from passing on global market price increases to consumers. Meanwhile, to manage petroleum stocks, the government implemented a 50-liter daily purchase limit per vehicle, reduced international travel by civil servants by 70 percent and domestic trips by 50 percent, cut official vehicle usage by up to 50 percent and ordered Friday work-from-home for government workers.

The Philippine government used to have the Oil Price Stabilization Fund (OPSF), which was established in 1984 to cushion consumers from sudden surges in global oil prices. It operated as a buffer fund, allowing regulators to maintain stable local pump prices by compensating oil companies during price spikes and collecting funds when prices dropped. Contributions to the OPSF came from the increase in ad valorem taxes and customs duties on petroleum prices and the increase in tax collection due to the lifting of tax exemptions on government corporations. An additional tax imposed on petroleum products was also used to finance the fund.

So basically, any price change incurred by the fuel companies in importing crude oil was not reflected in the selling price. Oil companies faced delays in recouping their profit margins and the entry of new players was discouraged and competition was minimized.

The OPSF was abolished in 1998 following the deregulation of the oil industry. Republic Act 8479, or the Downstream Oil Industry Deregulation, removed the government’s power to control fuel prices to help oil companies become more competitive with their supply and pricing of petroleum products.

Just recently, Senate President Tito Sotto filed Senate Bill 1984 seeking the total repeal of the oil deregulation law. In his explanatory note, Sotto explained that before RA 8479, the Energy Regulatory Board considered the dollar cost of imported crude oil and the foreign exchange rate and fixed prices of petroleum products. The OPSF automatically absorbed any price change incurred by oil companies in importing crude oil which is not reflected in the selling price.

Sotto said it is high time to give back to the state the authority to manage fuel prices and now that petroleum prices are directly impacted by the geopolitical tension in the Middle East, transparency, scrutiny and uniformity in pricing are needed more than ever.

Meanwhile, House Reps. Omar Vincent Duterte and Paolo Duterte have filed a bill also seeking to repeal RA 8479, as well as the establishment of the OPSF to be administered by the Office of the President to help maintain and stabilize oil prices whenever feasible, at prevailing reasonable retail or pump price levels.

According to Energy Secretary Sharon Garin, the government has no power to control fuel prices because of RA 8479. She supported moves to amend the law to give the government more authority to address price shocks.

A careful and thorough review of the Oil Deregulation Law as well as the impact of the previous regulated regime is needed. The OPSF and a regulated oil industry came at a high price and consumers were not spared from the aftereffects. On the other hand, a deregulated regime similarly comes at a high price not only for the consumers but for the entire economy as well. The government is now stuck between a rock and a hard place since any choice will likely lead to an unfavorable outcome.

Let us hope that government can find a win-win solution, maybe not as impactful, but something that could temporarily cushion the effects of the global oil crisis on those who need that support the most.

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