Revisiting the Oil Deregulation Law: Higher prices higher cost of living and low wages

By SHERWIN DE VERA
www.nordis.net

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Petroleum is an economic and socially sensitive consumer good. To quote Atty. Rino Abad of DoE’s Oil Industry Management Office – “walang aspeto ng buhay na hindi apektado ng fuel prices.”

While the country’s energy generation is only 4.87% dependent on oil, based on Department of Energy’s (DoE) 2017 data, production and distribution of commodities requires the use of petroleum. By deregulating the industry, the government opened the Pandora’s Box of skyrocketing prices of goods and services.

Oil deregulation in 1998 coincided with the steep and continuing rise of the country’s consumer price index (CPI) that means increasing cost of living (See Figure 1). CPI indicates the typical expenses of consumers in a particular period, where an increase means inflation and deflation when it declines.

See Figure 1. Consumer Price Index (CPI) June 1998 – June 2018.

Not just deregulation

Besides deregulation, liberal economic policies skewed in favor of big business allow the passing of surcharges, such as tax, to consumers. With the implementation of the Reform VAT Law in 2005 and TRAIN Law this year came the significant increase in fuel prices.

Contrary to the expected ‘ripple’ effect from TRAIN, what the people felt were waves upon waves of price increases. With Duterte’s tax reform, value added from state taxes increased to 24% of gasoline prices and 16% in diesel. Value added on fuel pump prices from indirect taxes greatly contributed to the 4.6% inflation experienced last May, with June inflation expected to be higher (See Figure 2).

See Figure 2. Three-year Inflation Rate

Where lies the problem?

Without any mechanism to cap the industry’s profit and stop them from passing indirect taxes to consumers, exacting revenue from a deregulated and monopolistic industry is akin to pouring gasoline on to a wildfire.

The income of the majority of Filipinos cannot keep up with rising prices of goods and services that come with the increase of pump prices. In Region 1, the minimum wage increased by P119-162 from 1998 to 2018, an annual raise of only P6.00-P8.00 (See Figure 3).

At an average, workers in the region received a nominal wage of P273 daily, supporting an average of five family members. With the regional inflation of 5.7%, the current real wage value of P186. Considering that three in the family are earning, their daily income’s real value is short by P415 from the national family living wage by IBON. Even if we use the nominal wage value and the P863 daily need surveyed, Stop Exploitation, a peasant organization in Ilocos, says there remains a gap of P1320 for their monthly expenses. This difference is much higher, at P581, if we use NEDA’s data of P42,000 monthly expenses for a family to live decently.

Figure 3. Rate of wage increase in Region 1 1998-2018 Source: DOLE Region 1

Misplaced priorities of the government over fund use and the dismal state of wage earners magnify the problem. In 2005, the institutionalization of VAT on petroleum products intended to sustain the demand for debt servicing that consumes 86% of government revenue in 2004. Under Duterte, 70% of the projected tax revenue under TRAIN is going to the administration’s “Build, Build, Build” program according to the finance department.

Move to amend

Under the dire situation of the economy, efforts to amend the law are gaining ground in Congress. Realities on the ground, such as the Baguio case, are also exposing the inutility of DoE in resolving the issue and its bankrupt defense for the deregulation law.

Bayan Muna Partylist Rep. Carlos Zarate has called on Congress to fast-track three measures to be free from the control of oil cartels and for the industry to promote social justice and equitable national economy.

Rep. Go also filed HB 7352 empowering DoE to monitor the pump prices of fuel and to set a price ceiling and maximum rate of increases.

The popular call from the public to review the law and other additional charges has even convinced Senator Sherwin Gatchalian, chair of the Committee on Energy that stricter monitoring and investigation of possible profiteering is necessary. He likewise called for amending the oil law to include penalties.

Independent think-tank, IBON Foundation is also consistent with its call to review the law. The institution pointed out that key issues in the oil industry “are the pricing schemes and profits of the oil firms.” Any review, according to the group, must include the “affected sectors and independent experts.”

In conclusion

The country’s policy on the oil and energy business experienced changes, however, reality remains that government policies through the years favored big businesses. Government statements on the benefits of the Oil Deregulation Law were meant to deceive the people. The intention of the law is not to provide relief but rather to give foreign oil companies the edge and ensure their profits.

The Baguio case study is but a tip of the extent of how liberalization and deregulation transformed a vital industry into a profit-driven enterprise. Yet, the government denies the truth and root cause of the problem that oil companies dictate the price and rakes in excessive profits.

The state is adding insult by using “funding public service” as predicate to tax reform programs directed to the industry when in reality, the purpose is to generate funds for debt servicing and public-private partnership projects that end up enriching private investors.

Furthermore, the existence of regional wage boards inflict severe inequality by pegging lower rates in the provinces and in the case of farm workers, lower than those existing in communities, when oil prices and daily expenses are almost at par with Metro Manila.

The scrutiny on the oil prices must not remain in Baguio. Unbundling of fuel costs is long overdue, so is the review of the Oil Deregulation Law. This must focus on instituting mechanisms that ensures affordable fuel prices, regulate the trade, and demand accountability from overcharging companies.

More than the excellent service from the petroleum retail outlets, people are demanding just and affordable fuel prices. The government must take action to make this call a reality by freeing the oil industry from foreign and capitalist control, and towards its eventual implementation. # nordis.net

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