Sunday, January 18, 2015

Lower rates of utilities

By Tony Lopez 
An article in the Washington Post suggests low oil prices will remain with us for quite some time.
On Jan. 12, the price of Brent crude fell to its lowest in five and a half years at below $50 a barrel, to $47.36 per barrel, from its high of $115 per barrel in June 2014.  
That is good news for nearly all Filipinos.
The 59 percent crude price drop means lower prices of nearly everything in the Philippines.  This is so because oil is a major cost component of many items in the consumer price index or CPI, particularly the so-called utilities.  As a percentage of production cost, energy, which is mainly oil, is about 20 percent. 
Since oil price has been halved, prices of many consumer items should be reduced by at least 10 percent, immediately, not later.  The only good news on this front so far is the government’s order on the airlines to remove their fuel price surcharge, which averages about P1,500 per plane ticket.
Of the 100 index points of the CPI, food gets the lion’s share with 38.98 percent.  Utilities comes next, with combined 32.53 percent.  These items include housing, water, electricity, gas and other fuels 22.46 percent, transport 7.81 percent, and communication (telephone) 2.26.
Ironically, these utilities items have gone up in price or rates, instead of coming down.  Utilities rates or prices have increased much higher than food prices.  Why, because the utilities companies—electricity, water, telephone, and transportation—are taking advantage of government’s soft attitude towards them. 
The price increase comes in two forms – first as a nominal price increase, and second, as a deterioration in quality of service.
You have higher priced electricity but it is not available 24 hours a day.  As I was writing this column in Mandaluyong yesterday, I had had four power interruptions.
You have higher priced water but it is not as pure as the water you used to enjoy before.  You have higher priced cellular phone service but quality is worse.  There is poor or no phone signal in a place when you need it most.   Like the ongoing papal visit in Manila.  A Globe phone cannot connect readily to a PLDT or Smart phone or vice versa.   The broadband speed is slow.  Wifi is erratic.
When the price of pan de sal goes up by 10 percent even while its size comes down by 10 percent, the effective price increase is 20 percent.  A deterioration is a hidden price increase.
What does the government do amid this price gouging?  Nothing.  Government itself abets the increases, first by not doing anything, and second, by joining the price increase spree.  MRT and LRT train rates are up as high as 87 percent despite rotting train tracks, dangerous train coaches, and sloppy management.
The high cost of utilities and inefficient but expensive mass transport are a factor why many Filipinos feel poorer each day and why poverty has remained rampant.
During 2014, the average number of Filipinos who said they were poor was 54 percent of the population, according to the Social Weather Stations.  This is the highest self-rated poverty ratio in the past four years.  When BS Aquino III began his presidency in 2010, the self-rated poverty was averaging 48 percent.
The government cannot go one stonewalling on lowering prices of utilities.  Oil is simply in such big surplus. Demand is down, especially from major oil consumers China, Japan, and Europe.  Alternative energy has also eaten up a chunk of the demand for oil.
Says the Washington Post:
“The world has just endured eight years of historically high crude oil prices, higher than any time since the 1979 to 1983 period when the Iranian Revolution and Iran-Iraq war disrupted oil supplies from two of the world’s biggest oil exporters. And that’s after adjusting for inflation.
“The four years with the highest average crude oil prices since the 1860s were 2008, 2011, 2012, and 2013.
“So when people talk about cheap oil, they’re talking about crude oil that is still more expensive than the average price from 1986 through 2004.”
 So there.  Cheap oil is now the new normal.  So too lower utilities rates and prices should be.

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