Filipino fuels fuss

The Philippines Supreme Court may soon decide an oil deregulation controversy that is testing the nation's resolve to decontrol its economy. Last February, the government of President Fidel Ramos deregulated the oil industry, allowing refiners to set their own prices. The goal was to open the oil industry to growth (OGJ, Dec. 12, 1994, p. 16), and it seemed to be working. Last summer, a $4 billion, 150,000 b/d refinery was proposed for the island of Mindanao. All was fine until the peso

Oct. 27, 1997

3 min read

Patrick Crow
Washington, D.C.
[email protected]

The Philippines Supreme Court may soon decide an oil deregulation controversy that is testing the nation's resolve to decontrol its economy.

Last February, the government of President Fidel Ramos deregulated the oil industry, allowing refiners to set their own prices.

The goal was to open the oil industry to growth (OGJ, Dec. 12, 1994, p. 16), and it seemed to be working. Last summer, a $4 billion, 150,000 b/d refinery was proposed for the island of Mindanao.

All was fine until the peso began plummeting in July. Since then, the peso has lost more than 32% of its value.

The nation's three major refiners-Petron Corp. (owned 40% each by the government and Saudi Aramco and 20% by others), Pilipinas Shell Petroleum Corp., and Caltex (Philippines) Inc.-began raising products prices, explaining they had to buy imported oil with a devalued peso.

National crisis

But consumers, accustomed to protected prices, protested loudly and staged transportation strikes.

They questioned whether there had been collusion, because refiners had raised prices the same amounts in unison.

The products price increases quickly became a major political issue. Several congressmen filed bills to amend the law. Lawsuits also were filed.

One of those went to the Supreme Court, where at a hearing late last month the justices were skeptical about the uniformity of the price increases.

On Oct. 7, the court issued an injunction that repealed recent price increases for 30 days while it considered the case.

President Ramos, recognizing that the issue threatens his entire economic reform program, continued to defend price decontrol. He observed that it freed for other uses a 9 billion peso ($257 million) government fund used to protect the refiners against oil price fluctuations.

Reactions

The three refiners have stoutly defended their actions.

Petron said the increases were due to "the sharp depreciation of the peso, which increased import costs for crude. The peso depreciation, like the international price of crude, is beyond the control of the oil companies."

Caltex said allegations of an oil cartel amounted to "a sweeping conclusion without any factual basis."

They petitioned the court to lift the injunction, which according to the companies was costing Petron $303,000/day and Caltex $145,000/day.

Meanwhile, industrialist Raul Concepcion suggested Congress repeal a tariff protection for the refiners.

He explained that lawmakers, to encourage construction of refineries, had set tariffs on products imports four percentage points higher than those for crude.

Concepcion said the tariff differential has contributed to the impression that the three refiners were operating like a cartel.

If the Supreme Court strikes the oil market deregulation law, industry observers question how the Philippines will accept the costs of another government initiative.

Last month Ramos ordered the phaseout of leaded gasoline in Man- ila by Jan. 1, 2000, and in the rest of the nation a year later.