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HOME > Selected Writings > Youngblood > Why there should be a rollback instead (6 July 1995)


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What’s wrong with oil deregulation?27 May 95
The truth about oil price hikes13 June 95
Oily conspiracy29 June 95
Why there should be a rollback instead6 July 95
From GATT to OGRE30 Sept 95
The economics of Christmas28 Dec 95

N.B. - Due to my Youngblood articles on the oil industry, the Inquirer requested me to write an essay on arguments for an oil price rollback. While it was packaged as "Commentary" on page 7, the paper's voucher still classified this contribution as a Youngblood article.

Why there should be a rollback instead

Danilo Araña Arao
Ibon News and Features

Philippine Daily Inquirer (Commentary), 6 July 1995, p. 7

ANALYZING the rationale behind the impending oil price increases demands not only a sense of economics but also a sense of history. Without the latter, the public would only be misled by numbers to accept the posturing of both the government and the oil companies.

Already, a UP-based tabloid columnist has said that a P2 per liter rollback demanded by Bayan is impractical, given the need of the government to earn more taxes on petroleum products, which is the crux of the militant group's argument. Another prominent businessman has also argued that the oil price increase should only be 60 centavos or around half of what the oil companies are demanding. They both argue on the premise that there are economic realities which are beyond anybody's control.

But regardless of whatever excuses government officials and their apologists may concoct, they cannot deny the fact that the public has been denied a substantial and immediate rollback in oil prices for the past years, particularly after the end of the Gulf War in early 1990. The P1 per liter rollback in August 1994 was much delayed and too small, not to mention the hidden agenda to increase company netback by 33 centavos per liter.

Another bone of contention is that the consumers have been swindled long enough and a rollback, at the very least, should be a form of penance on the part of the government and the oil companies. In analyzing these points, an understanding of related history is necessary.

Why a rollback

From March 1993 to February 1994, there were sharp decreases in the landed cost of crude oil --- from $17.03 to a low of $13.32 per barrel. Based on a rule of thumb, any $1 reduction in the landed cost should translate to a 20-centavo decrease in petroleum prices.

But during this 12-month period, there were only three price adjustments, and would you believe that the first one done on Jan. 28, 1994 was actually a P1.50 per liter increase? The second adjustment was a P1.50 per liter reduction made a few days after, i.e., Feb. 8, 1994. In other words, the decrease only meant to cancel out the previous increase.

While a P1 per liter rollback happened on Aug. 10, 1994, this was a delayed decision of the government, not to mention the fact that immediately after February 1994 there should have been an immediate rollback amounting to about P1 at the very least.

We also do not include here the blatant repugnance of the government's decision to grant a 33-centavo per liter increase in netback to the oil firms at the same time that the rollback was announced.

The public should not be faulted for not raising even a single howl of protest, since we were misled by a government which is supposed to protect the interest of Filipino consumers more than anything else. Besides, most of the people got preoccupied with the "benefits" of a rollback, unmindful of its delay and of the conspiracy between the government and oil companies.

Secret gov't earnings

The oil companies are not the only ones that earned at the expense of Filipino consumers. Would you believe that even the Ramos administration earned a hefty sum although it aborted the additional P1 per liter special duty a year ago?

It may be recalled that then President Corazon Aquino imposed a special duty of P1 per liter of crude oil, which translates to about P151 per barrel. President Ramos imposed an additional P1 duty per liter in September 1993, but because of a growing public outcry the government dropped it early last year.

But government does not feel remorse for its backtracking, since it already collected additional P1 per liter from September to December 1993, based on ERB data. Ibon computations show that the government in the process earned about P6 billion from this alone.

The P1 special duty was imposed as early as 1987. Since then, the government has been raising close to P18 billion yearly, at the expense of the people who have to shoulder the increased prices of petroleum products. The people have been suffering for so long, and the government ought to make that necessary sacrifice by scrapping this "Estanislao" levy.

How much rollback?

Bayan and the People's Coalition Against Oil Price Increase are demanding a P2 per liter rollback on the premise that taxes amounting to P1.77 per liter should be scrapped and that the 33-centavo increase in netback should be rescinded. (The P1.77 component consists of the P1 special duty, P0.25 ad valorem tax and specific taxes on petroleum products averaging P0.52).

While Bayan has a point here, the rollback ought to be more than that to correct the injustice inflicted on the people by the government and the oil companies. They ought to bear the pain for thinking that the people will never find out.

The responsibility of refurbishing the OPSF should rest on the oil companies and the government, since they were mainly responsible for its depletion in the first place.

They would most likely argue that a buffer fund is necessary to ensure stable prices but they are already assuming that the OPSF has functioned as a buffer since its inception in 1984. Maybe a buffer for the transnationals, but never for the people.

Abandoning deregulation

The absolute penance for the sinful and unkindly ones would be the abandonment of the planned deregulation of the oil industry and a reaffirmation of strict government regulations in a very strategic industry. Despite what the proselytizers of free trade might argue, nationalization remains as valid as ever, and in the context of the oil industry, it is very necessary, given the lack of access to petroleum products in remote areas, and given the imperative to make oil prices affordable to the poor majority.

Could we expect those who have sinned to confess or do penance? Or will they just turn the other cheek and go about their sinful ways in the months and years to come?


The author is editor-in-chief of Ibon Databank. He teaches Journalism at UP Diliman from which he graduated cum laude. He used to teach Political Science at De La Salle University.


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