New oil price increase set

Diesel P3.92, Gas P0.59, LPG P4.66; Price stabilization scheme bucked

Already high pump prices are expected to rise again next week, with diesel going up P3.92, gasoline P0.59, and kerosene by as much as P4.66 a liter as world oil prices remain volatile, industry sources said Thursday.

AUTOMATIC FARE HIKE. A jeepney barker on Thursday flashes a sign announcing the new minimum fare hike of P10 – reflecting the P1 increase approved by the Land Transportation Franchising Regulatory Board (LTFRB) Wednesday evening even without an official updated fare matrix yet. Danny Pata

On Tuesday, June 7, oil firms implemented price hikes of P6.55 per liter for diesel, P2.70 per liter for gasoline and P5.45 per liter for kerosene.

This prompted the government to approve a provisional P1 increase of the minimum fare for public utility jeepneys in Metro Manila and Regions 3 and 4, raising it to P10, even as the Department of Energy said there was no relief in sight from the constant increases.

But amid talk that the incoming Marcos administration would revive the Oil Price Stabilization Fund (OPSF) to shield consumers from wild fluctuations in the price of fuel, one industry group said it would oppose such moves.

“We maintain that the government’s money is better spent elsewhere in delivering essential services,” Philippine Institute of Petroleum (PIP) executive director Raffy Capinpin said during a webinar organized by the Philippine Institute of Development Studies (PIDS) on the risks of reviving the OPSF.

At the same event, Adoracion Navarro of PIDS said reviving the OPSF would be “anti-poor” in at least three respects.

“The price smoothing through the OPSF will not send the correct signal that consumers should reduce their consumption during seasons of very high international petroleum prices, and given that it is usually the rich who consume a higher volume of petroleum, the subsidy from the OPSF will disproportionately benefit the rich more than the poor,” Navarro said.

She said that based on experience, the government is not good at getting the right smoothed price (e.g., the government cannot stick to the correct price when political pressures mount), managing the fund, and controlling the deficits of the fund.

“Reviving the OPSF will likely result in the national government having to bail out the special fund using the general fund, displacing funding for anti-poverty programs in the process,” Navarro said.

She added that administering the OPSF will be very costly today given that there are many players now in the downstream oil industry, unlike during the OPSF days when there were only the “Big Three.”

“The huge cost will be disproportionately borne by the poor, again because of the to-be-displaced funding for social programs for the poor. The likely delays in reimbursing oil companies may even reverse the competition gains in the medium to long run and discourage investments in expansion or encourage withdrawals of investments, thereby restricting access of the general population to competitively priced petroleum products,” she said.

Capinpin said previous OPSF participants “agree that changes in the funds’ rules and the deviation from its intended purpose” led it to failing to accomplish its objectives and subsequently led to the misuse of funds.

PIP members include Chevron Philippines Inc, Isla LPG Corp., Petron Corp., Pilipinas Shell Petroleum Corp., PTT Philippines Corp., and Total Philippines Corp.

Navarro said programs on targeted assistance to the poor are preferable to the OPSF.

She said the history of the OPSF has shown that this policy instrument did not deliver the objectives, and the lengthy experiment even led to a greater burden on the poor.

Capinpin, meanwhile, said the oil industry will oppose the proposed amendments to the Oil Deregulation Law, particularly increasing the minimum inventory requirement (MIR) for oil products, as this would be “a form of price control.”

“Increasing MIR at best can help assure us that supply of fuel in the Philippines will not be disrupted…The Philippines imports nearly 100 percent of its crude oil and finished petroleum products. As such, we are subject to the volatility of global prices. It is driven primarily by supply and demand. It, in turn, is affected by OPEC production quotas and other seasonal factors and geopolitical tensions,” he said.

Capinpin said increasing the MIR will not lead to lower fuel prices as the industry does not practice inventory-based pricing or pricing products according to the cost of that current inventory.

“The oil players will import products at different times, and different parcel sizes. And then you price that according to inventory, it will cause swings in supply in demand per company and location. That is going to be very messy. It is not going to be reflective of the true cost of the product,” he said.

He said increasing the MIR at any given time for all products may be impossible for all players to implement as it will involve massive capital infusions for land, infrastructure, storage tanks, and inventory cost.

Capinpin said the required investments may find their way to the prevailing prices that are passed on to the consumers.

He said increasing MIR would also raise barriers to entry and discourage new investments. Moreover, he said, the current MIR is already sufficient, and many oil players already exceed this.

On Wednesday, the Department of Energy (DOE) said fuel prices would continue to rise unabated for the next few weeks.

The director of the DOE’s Oil Industry Management Bureau, Rino Abad, said they saw nothing that could offset the price increases.

Abad cited the European Union’s ban against oil imports from Russia, the potential surge of demand for fuel during summer in the Northern Hemisphere, and Russia’s ongoing invasion of Ukraine.

He said recent price rollbacks were due to the lockdowns in China, which are now almost over.

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