Palliative solutions

By Rod Kapunan

The price of fuel has again soared and as usual, we are frantic in coming out with outlandish suggestions to counter the spike to impress upon our people that this wayward government is doing something to rein it.  The approach is hypocritical—wanting to open our mouth while in truth trying to appease the oil cartel for their unabated quench for more profit.

One strange thing about the many suggestions is one that came from the militant Bayan Muna Party List.  The suggestion made by Rep. Teodoro Casiño was a departure from their usual holistic approach on such problems as oil, trade, land reform, etc.   All of a sudden, he came out with a palliative recommendation no different from the politicians and apologists of the oil cartel.

The same position was expressed by party mate Representative Neri Colmenares, and both have their eyes on the natural gas-rich Malampaya oil fields.  To ostensibly reduce our heavy reliance on imports, they suggested the idea of reducing the current value-added tax (VAT) of 12 percent to 6 percent on basic commodities and the construction of a compressed natural gas (CNG) plant.  According to Casiño, Malampaya holds an estimated 2 trillion cubic feet of natural gas at Recto Bank.

Maybe the two gentlemen hated Marcos for not espousing their brand of ideology.  But what cannot be ignored is Marcos advanced a formula that deviated from the stereotype socialist method of just nationalizing problematic industries.  Marcos boosted—or should we say refined—free enterprise by putting it back on track so  the market players could  bring down the price of oil and its by-products to a realistic level.   Marcos may not be like many of our imperialist-oriented economists who would flaunt their credentials, but common sense tells us that there is no such thing as fair competition in an industry characterized by oligopoly.

Such situation is likely to end up in the formation of a syndicated price cartel, which in fact was firmed up when the disciples of privatization sold all the government shares in Petron.    It did not even seep into their mind that privatization alone would not entice the private buyers.  In fact, they sought to append a law deregulating the price of oil just to assure them of a no-loss business proposition.  After all, in monopoly or oligopoly industries, consumers could only choose between taking it at their price or leaving it altogether.

The creation of Petron was designed to compete with the rest of the oil players, for it to make profit, and add revenue to the government.  Petron as government-owned corporation effectively dismantled the oil cartel much that public interest remains at its back.  It has to come out with its own price ceiling to break the price manipulation imposed by the cartel.   For that, Petron was able to slow down, if not reduce, the price of oil products without unduly hurting the profitability of the other players such as Shell and Caltex.

As the price setter in the industry, the two oil companies had no choice but to follow suit to prevent them from being eased out of the market by the natural impulse of open competition.  More than that, the complication that ensued with the advent of privatization such as the imposition of the 12-percent VAT on many of the basic commodities, the tax credit rebate in the importation of oil, and the weird proposal to impose subsidy on oil importation to induce oil companies to reduce their price was eliminated by the streamlining of the system in just allowing the government to participate.

Instead, privatization, deregulation, and the incentives given to oil companies gave criminals the idea to conceive of a multi-billion peso tax credit scam to defraud the government.  Corrupt employees in the Department of Finance, in connivance with private individuals and importers like oil companies,  confederated to defraud the government by their application of tax credit certificates to unqualified companies as in the Chingkoe tax credit scam case.

Admittedly, one of the objectives in nationalizing the industry is to stop the runaway increases in the price of oil.   However, that only substituted the unwanted approach of institutionalizing a government monopoly which often tends to be inefficient and graft ridden.   Besides, if government control cannot prevent oil price hike,  at least it could be minimized or lessened.  The government, by virtue of its monopoly, is always bound to be blamed even on the slightest increase in the price of oil because consumers see no other competitor.

Despite the realization that oil price hike could not be prevented, Marcos still came out with an alternative solution to cushion its impact without again swinging himself to the Left.  He then created the Oil Price Stabilization Fund.  As former Energy Secretary Geronimo Velasco explained: “…The pump prices were on the average, and the ministry, monitored the landed cost of crude oil being brought in by each of the members of the oil industry.  The ones with a lower average cost—the difference between the cost and the average pump price set by the Board of Energy—had to pay into the OPSF.  On the other hand, those who had costs higher than the average set by the board withdrew from the fund.  Through this mechanism, we managed to keep pump prices stable.  When the average general price declined, we just kept collecting OPSF contributions to ensure that we had enough buffer against future price spikes.”

Unfortunately, even on this aspect, our brothers from the Left could still not see the wisdom behind that formula.  For their hatred of the man, they only engendered isolation from the very people they wanted to liberate such that today, they are treated as some kind of political jesters serving to enliven the corrupt politics of the ruling elite.

rpkapunan@gmail.com