AGHAM – Advocates of Science and Technology for the People warns the government of the worsening economic crisis if it does not take action on the unprecedented price increase of diesel and gasoline. Another big-time oil price hike by PhP6.60/liter in diesel and PhP2.80/liter in gasoline was imposed by major oil companies this week. Because of these successive price hikes, prices of basic goods and services will surely increase in the following weeks as oil is crucial in every aspect of our economic activities.
The Philippines as a net fuel importer has been dependent on Middle Eastern crude supply since 2017, making our country vulnerable to the threat of energy security. About 90% of our total oil import comes from the Middle East, with a sharp increase from 87% in 2016 [1]. On the other hand, the government is tied-up in controlling the retail price of oil because of the implementation of the Oil Deregulation Law. The said law allows the liberalization and deregulation of the downstream oil industry with the intent to have a competitive market leading to “fair prices, adequate and continuous supply of environmentally-clean and high-quality petroleum products”.
The liberalization and deregulation of the oil industry has resulted in the “Big Three” dominating the oil industry, namely Petron Corporation, Philippines Shell and Chevron Philippines. They dominate 53% of the fuel market, while about 46% of the local oil refineries are owned by Petron Corporation and Pilipinas Shell [2]. The corporate control of the country’s oil sector has led to the manipulation of the oil price and passed all additional costs to the consumers including 12% value added tax (VAT). The law removes state intervention that could have protected the consumers from abuses such as speculation and overcharging. Case in point is the reported profit of Shell amounting to €8.6 billion during the first quarter of 2022, three times higher in the same period last year [3]. This is a windfall profit for the oil companies exacting higher prices more than the real cost of oil. With the VAT imposed on fuel products, the government through the Bureau of Internal Revenue earned PhP 35 million from 2018 to 2020 [4].
The oil crisis will continue to be a burden to the Filipino people and an impediment to our economic development. It is imperative for the government to undertake measures to alleviate the economic misery of the people. The government should immediately suspend fuel excise tax from the Tax Reform for Acceleration and Inclusion (TRAIN) for the time being in relation to the volatility of the global oil prices. Another medium term action of the government is ensuring the buffer stocking of oil that can be utilized when the global market price is in the upsurge.
The government should have a long term perspective of achieving self-sufficiency on oil. With the windfall profit of the “Big Three” oil companies from the huge profits they earned from the consumers, the government can demand for windfall tax that we can utilize to initiate the development of our downstream oil industry, such as upscaling technological capacity for the oil and gas exploration and production and expansion of renewable energy resources.
Finally, we will not be able to address the systemic problem of the oil industry in the country if the government does not reverse its current framework that is liberalized and deregulated. We should start with the scrapping of the Oil Deregulation Act to initiate the nationalization of the industry for the people’s benefit and for the country’ development.#
References
[1] The Philippines’ dependence on Middle East crude on the rise, S&P Global Commodity Insights dated April 2, 2018, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/040218-the-philippines-dependence-on-middle-east-crude-on-the-rise/
[2] “Big 3” oil companies continue to dominate Philippine fuel market, but Phoenix Petroleum close behind, Fuel and Lubes Daily dated January 9, 2019, https://www.fuelsandlubes.com/big-3-oil-companies-continue-dominate-philippine-fuel-market-phoenix-petroleum-close/
[3] Shell profits almost triple as energy prices soar. Would a windfall tax hold oil giants accountable? euronews.green dated May 5, 2022, https://www.euronews.com/green/2022/05/04/what-is-a-windfall-tax-and-why-are-campaigners-calling-for-one-after-record-fossil-fuel-pr
[4] Excise tax on petroleum products in the Philippines, Facts in Figures, Congressional Policy and Budget Research Department, February 2022 (No. 13)
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