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Oil companies can adjust the pump price according to the current world market rate even if their inventory was bought weeks ago at a lower price.
As the price of oil continues to rise due to the conflict in the Middle East, President Ferdinand Marcos Jr. national energy emergency on March 24.
According to the Department of Energy (DOE), pump prices in the Philippines have reached historical highson the stirring side increase in electricity levelinflation rate, and limited consumption capacity for ordinary Filipinos.
Behind the effects of rising oil prices is the deregulated oil industry which gives the government little room to intervene.
Replacement cost
Unlike its Southeast Asian counterparts, the Philippines has a fully deregulated oil industry that is governed by the Oil Industry Regulatory Act of 1998, which shifts the burden of supply and pricing to the private sector.
In a Senate hearing on March 24, Energy Secretary Sharon Garin told the Senate PROTECT (Proactive Responses and Oversight for Timely and Effective Crisis Response) committee that the government does not have the authority to dictate prices or interfere with private sector activities.
“I think it works…in good times though. In bad times, the government doesn’t have any control (functions) or authority over private corporations,” he said.
“That is why you cannot order them if necessary, when the government needs to intervene (That’s why you can’t tell them what to do if necessary or when the government needs to intervene) because the only thing the government can do is manage, monitor.
One of the main reasons behind the rise in oil prices is replacement cost accountingwhich allows oil companies to adjust pump prices based on the current world market rate even if their inventory was purchased weeks ago at a lower price. Replacement cost refers to the amount of money a business must pay to replace its supply at current market prices.
Despite the practice and deregulation of the industry, Garin told senators that the DOE monitors the prices set by oil companies.
“Our monitoring follows, we have set parameters. We don’t just leave them for their own use because we have reported defects. But the administration or the criminal or civil part, we don’t have authority there. But we can monitor and talk to them, and they correct if there is something wrong or we accept if they can justify it,” Garin said in a mixture of English and Filipino.
Senator Rodante Marcoleta questioned the use of oil companies to change costs during the session of the Senate PROTECT on March 26, saying that this behavior has led to an unreasonable increase in the price of oil despite sufficient reserves.
Supply and demand also play a role in why certain petroleum products are more expensive than others. In a press conference on Monday, March 30, Garin explained that the price of diesel is high because there is a higher domestic demand compared to gasoline.
“Diesel is the most used. The demand for diesel is always greater. But also, the international market has changed in terms of diesel. Diesel is the most volatile now,” Garin said.
Lack of government intervention
Compared to its regional neighbors, the Philippines has one of the highest pump prices in Southeast Asia despite a lack of government intervention.
In Thailand – another major importer of oil in the region – the government is using Fuel Oil Bag to cover local prices. According to the Thai government, it has been spending about 2.5 million baht (about P4.6 million) a day for subsidies.
However, it has since reduced subsidies on petrol and diesel to preserve treasury liquidity, leading to a 6 baht increase in Thai pump rates.
Philippine Deputy Energy Secretary Alessandro Mauzo also told senators that Thailand’s revenue from its petroleum production is funneled into subsidies that keep pump prices at a certain level.
Sales noted that the Philippine government has instead chosen to provide “direct aid” such as cash transfers to vulnerable sectors instead of broader price stabilization funds.
– Rappler.com
