Philippine Oil Deregulation – A Policy Research Analysis

I. INTRODUCTION

The Policy As An Output

Embodied within the Republic Act No. 8479, in any other case generally known as the “Downstream Oil Industry Deregulation Act of 1998,” is the coverage of the state that deregulates the oil business to “foster a truly competitive market which can better achieve the social policy objectives of fair prices and adequate, continuous supply of environmentally-clean and high quality petroleum products” (Congress 1998).

With deregulation, authorities permits market competitors. That means authorities doesn’t intrude with the pricing, exportation, and importation of oil merchandise, even the institution of shops, storage depots, ocean-receiving amenities, and refineries.

It has been a decade in the past since lawmakers made a proposition that deregulation would safe the Philippines from the vulnerability of oil worth shocks resulting from its closely depending on imported oil. But it’s now more and more obvious that many are calling to scrap the law as six out of ten Filipinos favor the repeal of RA 8479 (Somosierra 2008).

The Policy As A Process

When President Fidel Ramos began his administration in 1992, the nation had already began feeling the consequences of energy provide deficiencies, with main areas already experiencing energy interruptions. The energy disaster brought on a slowdown within the nationwide financial system for almost three years and prodded the federal government to provoke main reforms with a purpose to rehabilitate the power sector (Viray 1998, p.461-90). In response to an influence provide disaster, Ramos revived the plans to liberalize the oil business that have been minimize brief in the course of the Aquino administration resulting from Gulf disaster.

The authorities’s efforts to enact an oil deregulation law have been additionally intensified in 1995 when the Oil Price Stabilization Fund (OPSF ) began to threaten the fiscal stability of the financial system. Deregulation was thus seen as the answer to the recurring deficit.

The drawback of the OPSF deficit was partially associated to the extremely political nature of oil costs, which inspired authorities to defer worth will increase as a lot as attainable as a way to keep away from public protest even on the expense of incurring a fiscal deficit. However, authorities mismanagement of the fund additionally included utilizing it for non-oil functions comparable to financing different authorities tasks or the general public sector deficit when it was in surplus (Pilapil 1996, p.12).

At the peak of a robust lobbying effort for deregulation by oil corporations and regardless of the loud opposition of militant teams, the business was ultimately deregulated in 1996 with the enactment of RA 8180 (the Downstream Oil Industry Deregulation Act of 1996) in Congress.

However, Supreme Court declared in 1997 the unconstitutionality of RA 8180. The Court choice stemmed from three provisions within the law that have been deemed to inhibit free competitors and subsequently, violated the anti-belief mandate of the 1987 Constitution (Supreme Court 1997). But administration Congressmen shortly re-filed the oil deregulation invoice resulting in the brand new oil deregulation law. RA 8479 was then enacted to pave the best way for the complete deregulation of the oil business. Since then, authorities has not management over the business. What it may well do is just monitoring.

Applicable Models

The coverage mannequin that greatest describes the coverage course of is Vig and Kraft 1984 mannequin the place coverage levels/phases are characterised by 5 parts: 1) agenda setting, 2) coverage formulation, three) coverage adoption, four) coverage implementation, and 5) coverage monitoring.

On the opposite hand, the mannequin that greatest describes the coverage strategy is Mixed Scanning as a result of the Ramos administration resorted to rational planning course of and incrementalized on liberalization plan of the Aquino authorities.

II. THE POLICY IN THE CONTEXT OF THE POLICY SYSTEM

The Policy Environment

Identified coverage surroundings consists of the regime traits of Ramos Administration, socio-financial construction in 1990’s, and the prevailing worldwide monetary affect on the nation’s financial system and politics.

The Policy Stakeholders

Identified as stakeholders on this coverage are the Filipino individuals, the President, Legislators, Supreme Court, DOE, DOJ, DTI, NEDA, the oil corporations, NGO/advocacy teams, and media.

The Interrelationships Between Policy Environment And Stakeholders

Despite a robust opposition coming immediately from bizarre individuals, transport teams, and NGOs, the oil deregulation coverage was nonetheless pushed via. It was formulated and instituted beneath the regime of President Ramos who, in his flagship program referred to as the Philippines 2000, envisioned to make the nation globally aggressive by pursuing the thrusts of deregulation, market liberalization, and privatization. The media then uncovered the truth that the most important issue that influenced the formulation of the coverage was the perceived eventual chapter of the Oil Price Stabilization Fund, which had been initially established by President Ferdinand Marcos for the aim of minimizing frequent worth modifications caused by change changes and/or a rise in world market costs of crude oil and imported petroleum merchandise.

Influenced by the International Monetary Fund, Ramos administration argued that there was a have to decontrol the business as a result of beneath a regulated surroundings, costs will not be allowed to rise and fall with market ranges. This signifies that when costs went up, authorities needed to shell out cash to subsidize the distinction between the previous and the brand new worth.

According to the National Economic Development Authority (NEDA), had the federal government opted to not decontrol, OPSF obligation would have ballooned to at the very least P8.three billion in 1998. The P8.three billion is equal to the development of greater than four,500 kilometers of provincial roads, 51,000 deep wells of potable water, 25,000 faculty homes, or free rice for 20% of the poorest Filipinos (Bernales 1998)

The Supreme Court in 1998 dominated in favor of the constitutionality of the Downstream Oil Industry Deregulation Act of 1998. Since then, it has been the coverage of the next administrations to decontrol the business. DOE, DTI, DENR, DOST are businesses mandated to function the monitoring-arm of the federal government.

Is The Policy Working?

The reply is clearly “No.” IBON Foundation reported that the Oil Deregulation Law has additional strengthened the monopoly of the large oil corporations as automated oil worth hikes are allowed. Consequently, different oil corporations took benefit of the coverage, mountaineering pump costs of all petroleum merchandise by round 535% because the Oil Deregulation Law was first carried out in April 1996 (Bicol Today 2007). The coverage can also be unable to unravel or, at the least, mitigate the consequences of worldwide oil disaster.

III. THINKING ALOUD

A. Repeating The Process

a.1 Problem Definition/Structuring

It has been acknowledged that the issue with oil is way from over as deregulation coverage fails to satisfy its objective to foster a very aggressive market and affordable oil costs. The present president herself, Gloria Macapagal Arroyo, acknowledges the truth that the oil disaster is threatening to erode the very fiber of the Philippine society.

Unlike in 1998, the disaster in the present day appears to be extra irreparable because the United States is dealing with what many economists describe because the worst financial disaster in its historical past, triggering unstoppable skyrocketing of oil costs and costs of foodstuffs all over the world. As already said, the oil disaster is a worldwide one and needs to be addressed not solely on the nationwide degree, however on the worldwide degree as nicely.

But why is the oil disaster a worldwide disaster? Is it actually past the federal government management?

The Philippines, like many different nations, buys the oil on the spot market. By “spot” is supposed, that one buys the oil at a market solely 24 to 48 hours earlier than one takes bodily (spot) supply, versus shopping for it 12 or extra months prematurely. In impact, the spot market inserted a monetary intermediary into the oil patch revenue stream.

Today, the oil worth is essentially set within the two futures markets: London-based International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX). Here, merchants or buyers purchase or promote sure commodities like oil at a sure date sooner or later, at a specified worth. Basically, merchants spend money on the futures market by shopping for futures contracts referred to as “paper oil” or just paper declare towards oil. The very objective of shopping for oil is to not look forward to the precise supply of the bodily oil sooner or later, however to promote the paper oil to a different dealer at a better worth. That’s how buyers interact in widespread hypothesis; and it’s turning into a viscous cycle. Almost all nations, together with the Philippines, purchase the oil on the spot market the place the worth is already at its peak.

In a yr 2000 research, Executive Intelligence Review (EIR) confirmed that for each 570 “paper barrels of oil”-that is futures contracts overlaying 570 barrels-traded annually, there was just one underlying bodily barrel of oil. The 570 paper oil contracts pull the worth of the underlying barrel of oil, manipulating the oil worth. If the speculators guess lengthy-that the worth will rise-the mountain of bets pulls up the underlying worth (Valdes 2005).

This solely disproves the favored assumption that oil worth hike has one thing to do with the “law of supply and demand.” In reality, as a lot as 60% of immediately’s crude oil worth is pure hypothesis pushed by giant dealer banks and hedge funds. It has nothing to do with the handy myths of Peak Oil. It has to do with management of oil and its worth (Engdahl 2008).

In its current assertion, IBON Foundation cited a research carried out by the U.S. Senate Permanent Subcommittee on Investigations, which revealed that 30 % or extra of the prevailing crude oil value is pushed solely by hypothesis. IBON additional cited that hypothesis provides about $35 to a barrel of crude oil (Martinez 2008).

a.2 Developing Alternative

In the face of the alarming oil worth hike that threatens the survival of atypical Filipino individuals, various stakeholders name for various options: 1) modification of the Oil Deregulation Law, 2) scrap/repeal the law, three) removing of 12% vat on oil, four) search various sources of power, and 5) interact in nation-to-nation oil settlement.

a.three Options Analysis

1. Amendment of the Deregulation Law

As the general public continues to harm from surging oil costs, many coverage makers name to re-look at the Downstream Oil Industry Deregulation Act of 1998. One of whom, is Ilocos Sur Rep. Eric Singson who has sought a number of amendments within the stated law to make sure transparency within the pricing of oil merchandise and encourage larger competitors within the retail business, which has been underneath the affect of big oil corporations. He cited the necessity to amend Sections 14 and 15 of RA 8479 to strengthen the powers of the Department of Energy (DOE) so it may possibly successfully perform its mandate to tell and shield the general public from illicit practices within the oil business and to offer extra monetary help for the institution and operation of gasoline stations, which can encourage funding and truthful competitors (Malacanang 2005).

2. Scrap/Repeal the Oil Deregulation Law

To many, amending the law shouldn’t be sufficient to rectify the skyrocketing costs of oil and oil-based mostly merchandise; they demand for the repeal, as an alternative. A lawmaker from the Lower House, Cagayan de Oro City Rep. Rufus Rodriguez filed House Bill 4262 aiming to repeal Republic Act No. 8479, arguing that as an alternative of fostering a aggressive market, the law has solely strengthened the oil cartel within the nation and introduced the oil costs up. The invoice additionally seeks to re-set up the Oil Price Stabilization Fund. He articulated that dominant oil corporations nonetheless dictate the worth as a result of even new oil business gamers get their provide from the giants (Sisante 2008).

Militant teams and different non-authorities organizations have staged rallies and strikes everywhere in the nation in opposition of the deregulation coverage. Kilusang Mayo Uno (KMU), one of many nation’s outstanding labor teams, contested that cartelization nonetheless exists amidst deregulation. In its current assertion, KMU articulated that with current Dubai oil costs pegged at $97 per barrel (as of third week of September), native worth of diesel is at P49/liter; whereas when Dubai crude was at $97/liter on Nov. 6, 2007, diesel within the Philippines was bought solely at P37.95/liter, or P11.05/liter decrease than the current charges (GMANews.TV 2008).

three. Removal of 12% VAT on oil

Senator Mar Roxas stated that authorities should heed calls to take away the 12% worth-added tax (VAT) on oil and oil merchandise as costs proceed to go up regardless of the decreasing of oil costs on the planet market. Roxas had filed Senate Bill No. 1962. However, in her eighth State of the Nation Address (SONA), President Arroyo, said that it is going to be the poor who will endure probably the most from the removing of VAT on oil and electrical energy as this can imply the lack of P80 billion in packages being funded by her tax reform (Arroyo 2008).

four. Alternative sources of power.

While many have engaged themselves within the lengthy-operating debate about modification vs. repeal of the law, quite a lot of stakeholders argue that Philippine authorities should, as an alternative, give attention to various sources of power to rectify the heavy dependence on imported oil. Senator Juan Miguel Zubiri, now thought-about “Father of the Philippine Biofuels Bill,” has hyped biofuel because the miracle product which may decrease oil costs. But increasingly more scientists are frightened that specializing in biofuels might jeopardize meals manufacturing.

The Philippine LaRouche Society, an more and more rising assume tank group within the nation, says that biofuel advocacy is a dropping proposition because it competes with meals manufacturing for human consumption. The group calls, as an alternative, for the revival of the Bataan Nuclear Power Plant (BNPP) as quickly as potential to offer the inhabitants with an affordable, dependable, and steady supply of energy to subsequently free the individuals from dependence on oil. The group additional articulates that since that may require big monetary necessities, the Philippine authorities should, subsequently, declare a moratorium on overseas debt funds-since a lot of that are onerous and merely product of “bankers arithmetic” (Billington 2005).

5. Country-to-nation oil settlement

The Philippine LaRouche Society has lengthy been proposing to the federal government to provoke quick steps to determine bilateral contract agreements with oil-producing nations of not lower than 12 months’ authorities scheduled deliveries at affordable, fastened costs. Government may also enter into commodity-swap agreements with oil-producing nations.

As a member of the United Nations and different intergovernmental associations like APEC and WTO, the Philippine authorities ought to be a part of the rising worldwide name for a good and trustworthy oil buying and selling by de-itemizing oil as a commodity traded within the futures market.

a.four Deciding the Best and Most Feasible Option

It have to be recognized to all of the Filipino folks that oil deregulation, as a coverage, has did not foster a very aggressive market in the direction of truthful costs and sufficient, steady provide of environmentally-clear and top quality petroleum merchandise. Proposed answer # 2 (scrap/repeal the Oil Deregulation Law) is subsequently a greater choice. But repealing the Deregulation Law just isn’t the last word reply to the rise in oil costs. Even if the law is repealed, the Philippines will nonetheless be subjected to the identical elements-an increase in oil costs within the international market.

Proposed answer # 5 (nation-to-nation oil settlement) can tackle the difficulty of the oil disaster on the worldwide degree. How concerning the efforts to unravel the disaster on the nationwide degree?

The Philippine authorities should revive the Bataan Nuclear Power Plant to offer the inhabitants with an affordable, dependable, and steady supply of energy to subsequently free the individuals from dependence on oil. As proposed, authorities should direct sufficient funds, as an alternative for debt servicing, in the direction of the revival and improve of BNPP. Removal of the complete E-VAT, not solely on oil, should even be considered to ease the ache of the Filipino individuals. By moratorium, authorities does not need to extract a pound of flesh out of each Filipino to have the means to fund its packages.

B. Why seemingly “better” choices usually are not adopted? The Peculiarities of the Philippine Policy System

From the standpoint of the current administration, amending RA 8479 appears to be troublesome to undertake as a result of re-regulating the oil business would imply subsidizing oil costs-one thing like OPSF. To many, this doesn’t work in an period of rising crude costs as a result of it will entail authorities assets. This is the place debt moratorium is available in as an efficient fiscal technique. But moratorium, to many skeptics, is unwise as a result of they worry the blackmail or retaliation of the multinational collectors. Our leaders should find out how then President Nestor Kirchner of Argentina defied the predatory monetary establishments, averring that “There’s life after the IMF.”

On the opposite hand, many leaders deem nation-to-nation oil settlement inconceivable to implement as the enormous oil corporations have nonetheless robust affect on the coverage-making course of within the nation. On the a part of the oil corporations, it is going to be an enormous loss if authorities will assert its energy to have a bilateral settlement with any of the oil-producing nation. Also, many leaders think about the Philippines as a small nation with no voice within the worldwide meeting. But it’s a matter of getting “big balls,” to place it in a figurative language. After all, they’re the leaders and are mandated by the Constitution to guard and promote the overall welfare.

Another peculiarity of the Philippine coverage system is the damaging notion in the direction of nuclear power. BNPP has been stigmatized as being environmentally harmful and as being related to “corruption.” The reality of the matter is, the know-how has already advanced and been modernized. The Philippine authorities spent $2.three billion to construct BNPP with out producing a kilowatt of electrical energy. It is excessive time to revisit the previous technique to lastly free the nation from dependence on imported oil.

It is value mentioning that the International Atomic Energy Agency inspected the facility plant in Bataan early this yr and reported that this could possibly be rehabilitated, in full compliance with excessive worldwide security surroundings requirements, in at the least 5 years at a price of $800 million (Burgonio 2008). The Philippine LaRouche Society emphasizes the significance of declaring debt moratorium as a fiscal technique to start out the rehabilitation. The group argues that the Philippines is servicing the debt over US $10 billion per yr, which is greater than sufficient to start out the complete operation of BNPP (PLS 2008).

IV. INTEGRATION AND RECOMMENDATIONS: TOWARDS A BETTER PUBLIC POLICY SYSTEM

With the popularity that oil disaster is a worldwide oil disaster, affecting the lives of all inhabitants of our planet, it’s incumbent, subsequently, upon the management of the Philippines to right away take the next steps:

A) To instantly repeal the oil deregulation law, for the federal government to say its sovereign energy to have management over the oil business and financial system as an entire.

B) To suggest at any worldwide summit or meeting that oil, being a commodity, essential to the continuation of human life, be de-listed as a commodity traded within the futures market, thereby escaping the clutches of unscrupulous individuals and speculative monetary establishments.

C) To provoke speedy steps to determine bilateral contract agreements with petroleum-producing nations of not lower than 12 months’ authorities scheduled deliveries at affordable, fastened costs.

D) To design a complete power improvement program, resembling nuclear energy plant being probably the most value-environment friendly supply of power so far, for the aim of liberating our nation from full dependence on imported power sources. To this finish, moratorium on overseas debt have to be taken under consideration as a paramount fiscal technique.

The disaster, which we now face as a nation, requires understanding of the issues by way of diligent research and concomitant braveness to do what is true for the good thing about the current and future Filipino generations.

Source by Marlou Mumar

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