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A second look at oil deregulation

By Danilo Suarez | Posted on Apr. 16, 2013 at 12:01am | 1,701 views

On Feb. 10, 1998 Republic Act 8479, or the Oil Deregulation Law, was passed by the
10th Congress. Under this law the state shall liberalize and deregulate the downstream oil
industry, with the aim of boosting the petroleums competitive market and promote the
influx of more new players in the industry. The Department of Energy was entrusted a
three-percent tariff coupled with the responsibility of monitoring violations of fair trade
practice, safety requirements or environmental laws together with the Department of
Trade and Industry.
On paper , the law seeks to achieve a truly competitive market that runs with fair prices
and a suitable supply of environmentally-clean and high quality petroleum products. In
practice, however, this has not been the case. For this reason, the oil deregulation law has
become one of the most contentious laws in the country since its enactment. Its
constitutionality had been the subject of several petitions at the Supreme Court and many
legislators, including this representation (HB 00347 An act regulating the downstream
oil industry), have filed bills to amend or repeal it.
One of the more enduring controversial issues up to now is overpricing. Instead of
achieving competitive prices for the benefit of the consuming public, unabated and
questionable increases in petroleum prices have been a public outcry in the past 15
In February 1998, the month the current oil deregulation law was enacted, the pump price
of gasoline was P12.62. As of the first week of this month, official DOE records show the
retail price of gasoline in the NCR ranged from P48.65 to P54.64 per liter, which is more
than 300 percent higher than its 1998 prices.
What exacerbates this and continues to fuel negative speculation is that the public has no
way of knowing whether the price adjustments are reasonable or not, even based on the
supposed factors that affect local prices, namely global oil prices and the rate of foreign
exchange. Our consumers are forced to unconditionally accept whatever explanation the
oil firms and the Department of Energy give for the price increases. Deregulation law
notwithstanding, this representation is of the firm opinion that the public needs to know
the origin of petroleum imports the volume and the price at which they are bought,
together with other details that are hidden from the consumers under the current set-up
of decentralized importation.
In this, the government has a primary role to play, being accountable to the people.
Moreover, initiatives in this direction will also make significant headway in addressing
another national issue gravely affecting the industry and the Filipino consumers in
general that of oil smuggling. The country is especially vulnerable because while we
have one of the most oil intensive economies in the Asia, we are also one of the most
import-dependent for petroleum.
Pilipinas Shell and Petron Corporation have recently made public that the government is
losing P30 billion to P40 billion in revenues a year due to oil smuggling, a staggering
amount which is comparatively bigger than what the government expects to generate this
year from higher taxes on sin products. Ramon S. Ang of Petron Corporation, the
countrys largest oil company, claimed that smuggled oil products account for at least a
third of the total volume sold in the market, adding that about one out of every three
litters of gasoline or diesel sold in the Philippines is smuggled. The claim of Petron is that
smugglers are using the special economic zones to evade paying the 12 percent value-
added tax and the excise tax. This allows some retailers to sell cheap oil. Customs
sources confirmed as well claims by Shell and other players in the oil industry that
petroleum products are smuggled into the country.
What is most sure is that smuggling remains unabated and that it has even worsened
under this administration. This administration needs to buckle down and find ways to
address this urgent concern within the framework of deep reforms in the industry to curb
possible price abuses and improve efforts against tax leakages. A study done by the
National Economic and Development Authority last year estimated individual tax
leakages to reach at least P35.69 billion a year from 2011 to 2016 proving that
bureaucratic corruption, inefficiency, and wastage continue to deprive government of
potential revenues under this administration.
There are currently more than 600 players in the downstream oil industry. One option we
would like to propose is for the government to impose safety nets and control
mechanisms within the purview of the oil deregulation law, to include limiting industry
players to the top five honest taxpaying oil players (i.e., Petron, Shell, Chevron, Total
plus another independent player). This will effectively limit the channels of opportunity
for smugglers and present a more wieldy structure to plug tax leaks.

Scrapping oil deregulation law wont stop price increases DoE
Written by Ed Velasco
Wednesday, 19 September 2012 00:00
The Department of Energy (DoE) said yesterday scrapping the irritating oil deregulation law will
not solve the problem of non-stop oil price increases as the scenario is a global problem.
According to the DoE, the Philippines shifted to oil deregulation law in 1998 after the market
subsidy in the form of oil price stabilization fund (OPSF) incurred losses of billions of pesos
which the government had to bear through the Philippine National Oil Co. (PNOC).
Oil price deregulation law was originally enacted in 1996 but the first version of the law was
declared unconstitutional by the Supreme Court (SC).
DoE Undersecretary Jay Layug reminded the media that scrapping the law will not solve the
problem of wanton oil price increases.
With continuing volatility and increase in international oil prices, the government could no
longer cover OPSF deficits for lack of funds, Layug told The Daily Tribune before leaving
The undersecretary claimed that on the basis of attracting new players in the industry and
widening the base of downstream oil industry players, the oil deregulation law met its primary
As a lawyer, the official said there are many gray areas in the oil deregulation law that allows
profiteering among oil firms and liquefied petroleum gas sellers.
There is room, however, to improve the oil deregulation law in order to provide the DoE
with administrative powers to punish parties who fail to comply with DoE rules and
regulations, including compliance with Philippine national standards for petroleum products,
dispensing of pumps, LPG retail rules, etc., he said.
Layug said the DoE is helpless against profiteers and violators in the oil industry because the
oil deregulation law does not prescribe any specific formula consistent with the regime of
Notwithstanding deregulation, however, the oil industry players must adhere to the
fundamental principle of fair prices as provided by law, Layug said.
Layug added the DoE assures the pubic that they continue to actively monitor oil price
movements to ensure that price adjustments are reasonable and consistent with the movement
of oil prices in the international market.

Republic of the Philippines
Congress of the Philippines
Metro Manila
Tenth Congress

Republic Act No. 8479
February 10, 1998

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

Section 1. Short Title. This Act shall be known as the "Downstream Oil Industry Deregulation
Act of 1998."

Section 2. Declaration of Policy. It shall be the policy of the State to liberalize and deregulate
the downstream oil industry in order to ensure a truly competitive market under a regime of fair
prices, adequate and continuous supply of environmentally-clean and high-quality petroleum
products. To this end, the State shall promote and encourage the entry of new participants in the
downstream oil industry, and introduce adequate measures to ensure the attainment of these

Section 3. Coverage. This Act shall apply to all persons or entities engaged in any and all
activities of the domestic downstream oil industry, as well as persons or companies directly
importing refined petroleum products for their own use.

Section 4. Definition of Terms. For purposes of this Act, the following terms are hereinbelow
(a) Basel Convention shall refer to the international accord which governs the trade or movement
of hazardous and toxic wastes across borders;
(b) Board shall refer to the Energy Regulatory Board;
(c) BOI shall refer to the Board of Investments;
(d) Crude Oil shall refer to oil in its natural state before the same has been refined or otherwise
treated, but excluding water, bottoms, sediments and foreign substances;
(e) Dealer shall refer to any person, whether natural or juridical, who is engaged I the marketing
and direct selling of petroleum products to motorists, end users, and other consumers;
(f) DOE shall refer to the Department of Energy;
(g) DOJ shall refer to the Department of Justice;
(h) Downstream Oil Industry(DOI) or Industry shall refer to the business of importing;
exporting, re-exporting, shipping, transporting, processing, refining, storing, distributing,
marketing and/or selling crude oil, gasoline, diesel, liquefied petroleum gas (LPG), kerosene,
and other petroleum products;
(i) Hauler shall refer to any person, whether natural or juridical, engaged in the transport,
distribution, hauling, and carriage of petroleum products, whether in bulk or packed form, from
the oil companies and independent marketers to the petroleum dealers and other consumers;
(j) LPG Distributor shall refer to any person or entity, whether natural or juridical, engaged in
exporting, refilling, transporting, marketing, and/or selling of LPG to end users and other
(k) New Industry Participants shall refer to new participants in a particular sub-sector of the
downstream oil industry with investments and initial business operations commencing after
January 1, 1994;
(l) Person shall refer to any person, whether natural or juridical, who is engaged in any activity
of the downstream oil industry;
(m) Petroleum shall refer to the naturally occurring mixture of compounds of hydrogen and
carbon with a small proportion of impurities and shall include any mineral oil, petroleum gas,
hydrogen gas, bitumen, asphalt, mineral wax, and all other similar or naturally-associated
substances, with the exception of coal, peat, bituminous shale and/or other stratified mineral fuel
(n) Petroleum Products shall refer to products formed in the case of refining crude petroleum
through distillation, cracking, solvent refining and chemical treatment coming out as primary
stocks from the refinery such as, but not limited to: LPG, naphtha, gasolines, solvents,
kerosenes, aviation fuels, diesel oils, fuel oils, waxes and petrolatums, asphalt, bitumens, coke
and refinery sludges, or other such refinery petroleum fractions which have not undergone any
process or treatment as to produce separate chemically-defined compounds in a pure or
commercially pure state and to which various substances may have been added to render them
suitable for particular uses: Provided, That the resultant product contains not less than fifty
percent (50%) by weight of such petroleum products;
(o) Singapore Import Parity(SIP) shall refer to the deemed landed cost of a petroleum product
imported from Singapore at a free-on-board price equal to the average Singapore Posting for that
product at the time of loading;
(p) Singapore Posting shall refer to the price of petroleum products periodically posted by oil
refineries in Singapore and reported by independent international publications; and
(q) Wholesale Posted Price (WPP) shall refer to the ceiling price of petroleum products set by
the Board based on its duly approved automatic pricing formula.


Section 5. Liberalization of the Industry. Any law to the contrary notwithstanding, any person
or entity may import or purchase any quantity of crude oil and petroleum products from a
foreign or domestic source, lease or own and operate refineries and other downstream oil
facilities and market such crude oil and petroleum products either in a generic name or his or its
own trade name, or use the same for his or its own requirement: Provided, That any person who
shall engage in any such activity shall give prior notice thereof to the DOE for monitoring
purposes: Provided, further, That such notice shall exempt such person or entity from securing
certificates of quality, health and safety and environmental clearance from the proper
governmental agencies: Provided, furthermore, That such person or entity shall, for monitoring
purposes, report to the DOE his or its every importation/exportation: Provided, finally, That all
oil importations shall be in accordance with the Basel Convention.
Section 6. Tariff Treatment. (a) Any law to the contrary notwithstanding and starting with the
effectivity of this Act, a single and uniform tariff duty shall be imposed and collected both on
imported crude oil and imported refined petroleum products at the rate of three percent (3%):
Provided, however, That the President of the Philippines may, in the exercise of his powers,
reduce such tariff rate when in his judgment such reduction is warranted, pursuant to Republic
Act No. 1937, as amended, otherwise known as the Tariff and Customs Code: Provided, further,
That beginning January 1, 2004 or upon implementation of the Uniform Tariff Program under
the World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shall
be automatically adjusted to the appropriate level notwithstanding the provisions under this
(b) For as long as the National Power Corporation (NPC) enjoys exemptions from taxes and
duties on petroleum products used for power generation, the exemption shall apply to purchases
through the local refineries and to the importation of fuel oil and diesel.
Section 7. Promotion of Fair Trade Practices. The Department of Trade and Industry (DTI)
and DOE shall take all measures to promote fair trade and prevent cartelization, monopolies,
combinations in restraint of trade, and any unfair competition in the Industry as defined in
Article 186 of the Revised Penal Code, and Articles 168 and 169 of Republic Act No. 8293,
otherwise known as the "Intellectual Property Law". The DOE shall continue to encourage
certain practices in the industry which continue to encourage certain practices in the Industry
which serve the public interest and are intended to achieve efficiency and cost reduction, ensure
continuous supply of petroleum products, and enhance environmental protection. These
practices may include borrow-and-loan agreements, rationalized depot and manufacturing
operations, hospitality agreements, joint tanker and pipeline utilization, and joint actions on spill
control and fire prevention.
The DOE shall monitor the relationship between the oil companies (refiners and importers) and
their dealers, haulers and LPG distributors to help ensure the observance of fair and equitable
practices and to ensure the enforcement of existing contracts: Provided, That the DOE shall
conciliate and arbitrate any dispute that may arise with respect to the contractual relationship
between the oil companies and the dealers, haulers and LPG distributors involving the dealers'
mark-up, the freight rate in transporting petroleum products and the margins of LPG distributors
for the protection of the public and to prevent ruinous competition: Provided, further, That the
arbitration award of the DOE shall be subject to judicial review under existing law.

Section 8. Program to Encourage the Entry of New Participants in the I ndustry. The DOE,
the Department of Foreign Affairs (DFA) and the DTI shall jointly formulate and establish a
program that will promote the entry of new participants in the Industry. Such program shall,
among others, include a strategic international information campaign to be implemented through
selected embassies and consular offices of the Philippines. This program shall commence
implementation after three (3) months from the effectivity of this Act.
In this regard, the DOE shall provide a "Philippine Downstream Oil Industry Investment Guide"
to new industry participants and prospective participants. This guide, shall, among others,
(a) An introduction to the Philippine Downstream Oil Industry and the government's unwavering
commitment to deregulation;
(b) The entry requirements;
(c) Information on the benefits and incentives for new industry participants which shall specify:
(i) all the incentives and benefits they can enjoy, and (ii) the procedural and substantive
requirements needed for entitlement; and
(d) Such other information the DOE may deem necessary to promote the entry of new

Section 9. I ncentives for New I nvestments. To the extent applicable, persons with new
investments as determined by the DOE and registered with the BOI in refining, storage,
marketing and distribution of petroleum products, shall be extended the same incentives granted
to BOI-registered enterprises engaged in a preferred area of investments pursuant to Executive
Order No. 226, otherwise known as the "Omnibus Investments Code of 1987".
Such incentives shall include:
(1) Income tax holiday;
(2) Additional deduction for labor expenses;
(3) Minimum tax and duty of three percent (3%) and value-added tax (VAT) on imported capital
(4) Tax credit on domestic capital equipment;
(5) Exemption from contractor's tax;
(6) Unrestricted use of consigned equipment;
(7) Exemption from the real property tax on production equipment or machineries;
(8) Exemption from taxes and duties on imported spare parts; and
(9) Such other applicable incentives under Article 39 of Executive Order No. 226.
Any provision of the law to the contrary notwithstanding, the said incentives may be availed by
persons with new investments for a period of five (5) years from registration with the BOI:
Provided, however, That in the storage, marketing and distribution of petroleum products, only
the investments of new industry participants shall be entitled to incentives provided in the said
Code. As used herein, "marketing of petroleum products" shall include the establishment of
gasoline stations.
For this purpose, the industry shall be included in the annual Investment Priorities Plan (IPP):
Provided, That nothing in herein contained shall preclude qualified persons or entities as
provided under the "Omnibus Investments Code" from applying from or continue enjoying
incentives and benefits under the said Code.

Section 10. Promotion of Retail Competition. To achieve the social and policy objective of
fair prices, facilitate the attainment of a truly competitive product market in the retail level, the
DOE shall promote and encourage by way of information dissemination, networking, and
management/skills training, the active and direct participation of the private sector and
cooperatives in the retailing of petroleum products through joint venture/supply agreements with
new industry participants for the establishment and operation of gasoline stations: Provided,
That the training herein shall include LPG retailing.
To this end, the DOE shall, in accordance with the Technology and Livelihood Resource Center
(TLRC) and Technical Education and Skills Development Authority (TESDA), coordinate with
new industry participants and existing petroleum dealers' associations in the formulation and
implementation of a two-fold program on management and skills training for the establishment,
operation, and maintenance of gasoline stations.
Persons who successfully complete the two-fold program shall be entitled to government
assistance being extended by government lending agencies, in the form of medium- to long-term
loans with low interest rates and to the gasoline training station training and loan fund provided
hereunder, to serve as capital for the establishment and operation of gasoline stations.
For these purposes, there is hereby established a gasoline station and loan fund with the initial
amount of Three hundred million pesos (P 300,000,000.00) to be provided by the Philippine
Amusement and Gaming Corporation (PAGCOR) and administered by the DOE under a
separate account.
Of this amount, two percent (2%) plus any additional funding shall be allocated for he two-fold
program; one percent (1%) plus any additional funding shall be set aside for administrative,
maintenance, and other operating expenses; ninety-four percent (94%) shall be used exclusively
for lending and financial assistance; the remaining three percent (3%) shall be utilized in
accordance with the provisions of Section 26 of this Act: Provided, That the loans to be awarded
herein shall be from short- to medium-term with low interest rates; Provided, further, That these
loans shall be awarded to qualified persons who are able to comply with the conditions set forth
in the next two (2) preceding paragraphs.

Section 11. Anti-Trust Safeguards. To ensure fair competition and prevent cartels and
monopolies in the Industry, the following acts are hereby prohibited:
(a) Cartelization which means any agreement, combination or concerted action by refiners,
importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets,
either by products or by areas, or allocate markets, either by products or by areas, in restraint of
trade or free competition, including any contractual stipulation which prescribes pricing levels
and profit margins;
(b) Predatory pricing which means selling or offering to sell any oil product at a price below the
seller's or offeror's average variable cost for the purpose of destroying competition, eliminating a
competitor or discouraging a potential competitor from entering the market: Provided, however,
That pricing below average variable cost in order to match the lower price of the competitor and
not for the purpose of destroying competition shall not be deemed predatory pricing. For
purposes of this provision, "variable cost" as distinguished from "fixed cost", refers to costs such
as utilities or raw materials, which vary as the output increases or decreases and "average
variable cost" refers to the sum of all variable costs divided by the number of units of outputs.
Any person, including but not limited to the chief operating officer, chief executive officer or
chief finance officer of the partnership, corporation or any entity involved, who is found guilty
of any of the said prohibited acts shall suffer the penalty of three (3) to seven (7) years
imprisonment, and a fine ranging from One million pesos (P 1,000,0000.00) to Two million
pesos (P 2,000,000.00).

Section 12. Other Prohibited Acts. To ensure compliance with the provisions of this Act, the
refusal to comply with any of the following shall likewise be prohibited:
(a) submission of any reportorial requirements;
(b) use of clean and safe (environment and worker-benign) technologies;
(c) any order or instruction of the DOE Secretary issued in the exercise of his enforcement
powers under Section 15 of this Act; and
(d) registration of any fuel additive with the DOE prior to its use as an additive.
Any person, including but not limited to the chief operating officer or chief executive officer of
the partnership, corporation or any entity involved, who is found guilty of any of the said
prohibited acts shall suffer the penalty of imprisonment for two (2) years and a fine ranging from
Two hundred fifty thousand pesos (P 250,000.00) to Five hundred thousand pesos (P

Section 13. Remedies. (a) Government Action. Whenever it is determined by the Joint Task
Force created under Section 14 (d) of this Act, there is a threatened or imminent or actual
violation of Section 11 of this Act, it shall direct the provincial or city prosecutors having
jurisdiction to institute an action to prevent or restrain such violation with the Regional Trial
Court of the place where the defendants reside or has his place of business. Pending hearing of
the complaint and before final judgment, the court may at any time issue a temporary restraining
order or an injunction as shall be deemed just within the premises, under the same conditions
and principles as injunctive relief is granted under the Rules of Court.
Whenever it is determined by the Joint Task Force that the Government or any of its
instrumentalities or agencies, including government-owned or controlled corporations, shall
suffer loss or damage in its business or property by reason of violation of Section 11 of this Act,
such instrumentality, agency or corporation may file an action to recover damages and the costs
of the suit with the Regional Trial Court which has jurisdiction as provided above.
(b) Private Complaint. Any person or entity shall report any violation of Section 11 of this Act
to the Joint Task Force. The Joint Task Force shall investigate such reports in aid of which the
DOE Secretary may exercise the powers under Section 15 of this Act. The Joint Task Force shall
prepare a report embodying its findings and recommendations as a result of any such
investigation, and the report shall be made at the discretion of the Joint Task Force. In the event
that the Joint Task Force determines that there has been a violation of Section 11 of this Act, the
private person or entity shall be entitled to sue for and obtain injunctive relief, as well as
damages, in the Regional Trial Court having jurisdiction over any of the parties, under the same
conditions and principles as injunctive relief is granted under the Rules of Court.


Section 14. Monitoring. (a) The DOE shall monitor and publish daily international crude oil
prices, as well as follow the movements of domestic oil prices. It shall likewise monitor the
quality of petroleum products and stop the operation of businesses involved in the sale of
petroleum products which do not comply with the national standards of quality that are aligned
with the national standards/protocols of quality. The Bureau of Product Standards of the DTI,
together with the Department of Environment and Natural Resources (DENR), the DOE, the
Department of Science and Technology (DOST), representatives of the fuel and automotive
industries and the consumers, shall set the specifications for all types of fuel and fuel-related
products to improve fuel composition for increased efficiency and reduced emissions. The BPS
shall also specify the allowable content of additives in all types of fuels and fuel-related
(b) The DOE shall monitor the refining and manufacturing processes of local petroleum products
to ensure that clean and safe (environment and worker-benign) technologies are applied. This
shall also apply to the process of marketing local and imported petroleum products.
(c) The DOE shall maintain a periodic schedule of present and future total industry inventory of
petroleum products for the purpose of determining the level of supply. To implement this, the
importers, refiners, and marketers are hereby required to submit monthly to the DOE their actual
importations, local purchases, sales and/or consumption, and inventory on a per crude/product
(d) Any report from any person of an unreasonable rise in the prices of petroleum products shall
be immediately acted upon. For this purpose, the creation of the DOE-DOJ Task Force is hereby
mandated to determine within thirty (30) days the merits of the report and initiate the necessary
actions warranted under the circumstance: Provided, That nothing herein shall prevent the said
task force from investigating and/or filing the necessary complaint with the proper court or
agency motu propio.
Upon the effectivity of this Act, the Secretaries of Energy and Justice shall jointly appoint the
members of a committee who shall be tasked with the drafting of the rules and guidelines to be
adopted by the Task Force in the performance of its duty. These guidelines shall ensure the
efficiency, promptness, and effectiveness in the handling of its cases. The Task Force shall be
organized and its members appointed within one (1) month from the effectivity of this Act.
(e) In times of national emergency, when the public interest so requires, the DOE may, during
the emergency and under reasonable terms prescribed by it, temporarily take over or direct the
operation of any person or entity engaged in the Industry.
Section 15. Additional Powers of the DOE Secretary. In connection with the enforcement of
this Act, the DOE Secretary shall have the following powers:
(a) To gather and compile appropriate information concerning, and to investigate from time to
time the organization, business, conduct, practices, and management of any person or entity in
the Industry;
(b) To require, by general or special orders, persons or entities engaged in a particular activity of
the industry: (i) to file an annual or special report, or both in such form as the Secretary may
prescribe; or (ii) to answer specific questions in writing, furnishing to the Secretary such
information as he may require as to the organization, business, conduct, practices, management,
and relation to other corporations, partnerships, and individuals of the respective persons or
entities filing such reports or answer. Such reports and/or answer shall be filed with the
Secretary under oath and within such reasonable time as the Secretary may prescribe;
(c) Upon the direction of the President or either House of Congress, to investigate and report the
facts relating to any alleged violation of this Act by any person or corporation;
(d) Upon the application of the Secretary of Justice, to investigate and make recommendations
for the readjustment of the business of any person or entity alleged to be violating this Act in
order that such person or entity may thereafter maintain his or its organization, management, and
conduct of business in accordance with law;
(e) To recommend to the proper government agency the suspension or revocation and
termination of the business permit of an offender;
(f) Concomitant with the policy of ensuring a continuous, adequate and economic supply of
energy to exercise his powers and functions provided under Section 5 (c) of Republic Act No.
(g) To make public from time to time such portions of the information obtained by him
hereunder as are in the public interest; and to make annual and special reports to Congress and to
submit therewith recommendations for additional legislation; and to provide for the publication
of his reports and decisions in such form and manner as may be best adapted for public
information and use: Provided, That the Secretary shall have any authority to make public any
trade secret or any commercial or financial information which is obtained from any person or
entity which is privileged or confidential, except that the Secretary may disclose such
information to officers and employees of appropriate law enforcement agencies or to any officer
or employee of any such law enforcement agency upon the prior certification by an officer of
any such law enforcement agency that such information will be maintained in confidence and
will be used only for official law enforcement purposes; and
(h) Whenever a final order has been entered against any defendant in any suit brought by the
government to prevent and restrain any violation of the anti-trust provisions of this Act to make
investigation, upon his initiative, of the manner in which the decree has been or is being carried
out, and upon the application of the Secretary of Justice, it shall be his duty to make such
investigation. He shall transmit to the Secretary of Justice a report embodying his findings and
recommendations as a result of any such investigation, and the report shall be made public at the
discretion of the Secretary.


Section 16. Phases of Deregulation. In order to provide a smooth implementation of
deregulation, the policy shift shall be done in two (2) phases: Phase I (Transition Phase) and
Phase II (Full Deregulation Phase).
Section 17. Buffer Fund. The President may, when the interest of the consumers so requires,
taking into account the rise in the domestic prices of petroleum products, use the "Reserve
Control Account" as a buffer fund in an amount not exceeding Two billion nine hundred million
pesos (P 2,900,000,000.00) to cover increases in the prices of petroleum products, except
premium gasoline, during the Transition Phase over the prices prevailing as of the date of the
effectivity of this Act. The "Reserve Control Account" refers to a lump sum collation of reserve
impositions deducted from the appropriations approved by Congress for the operation of the
government and the implementation of projects and programs.

Section 18. Automatic Oil Pricing Mechanism. To enable the domestic price of petroleum
products to approximate and promptly reflect the prices of oil in the international market, an
automatic pricing mechanism shall be established. To this end, the following laws are hereby
(a) Paragraph (a), Section 8 of Republic Act No. 6173, as amended by Section 3 of Executive
Order No. 172, to read as follows:
"SEC. 8. Powers of the Board Upon Notice and Hearing. The Board shall have the power:
"(a) To set the wholesale posted price of petroleum products during the Transition Phase.
"For this purpose and for the protection of the public interest, the Board shall, after due notice
and hearing, at which any consumer of petroleum products and other parties who may be
affected may appear and be heard, and within one (1) month after the effectivity of this Act,
approve a market-oriented formula to determine the WPP of petroleum products based solely on
the changes of either the Singapore Posting of refined petroleum products, the SIP or the crude
landed cost.
"Thereafter, the Board shall at the proper times automatically adjust the WPP of petroleum
products based on the approved formula, through appropriate orders, without the need for notice
and hearing.
"The Board shall, on the dates of effectivity of the automatic oil pricing formula, the initial WPP
or the adjusted WPP, publish the same, together with the corresponding computation in two (2)
national newspapers of general circulation."
(b) Paragraph 1 of Letter of Instruction No. 1441, to read as follows:
"1. To review and reset the prices of domestic petroleum products up or down as necessary on or
before the third Monday of each month to reflect the new WPP of refined petroleum products
based on the approved automatic pricing formula."
(c) Paragraph 2 of Letter of Instruction No. 1441 is hereby deleted. In lieu thereof a new
paragraph is inserted to read as follows:
"2. The price adjustment shall be reflected automatically in the approved WPP of each petroleum
(d) The provisions of Section 3 (a) and (c) and Section 5 of Executive Order No. 172 to the
contrary notwithstanding, the Board shall, during the Transition Phase, maintain the current
margin of dealers and rates charged by water transport operators, haulers and pipeline
concessionaires. Depending on the basis of the APM, the Board shall, within one (1) month after
the effectivity of this Act and after proper notice and full public hearing, prescribe a formula
which will automatically set the margins of marketers and dealers, and the rates charged by
water transport operators, haulers and pipeline concessionaires: Provided, That such formula
shall take effect simultaneously with the effectivity of the automatic oil pricing formula.
Thereafter, the Board shall set the said margins and rates based on the approved formula without
the necessity for public notice and hearing.
The Board shall, on the day of the effectivity of the aforesaid formula, publish in at least two (2)
newspapers of general circulation the mechanics of the formula for the information of the public.


Section 19. Start of Full Deregulation. Full deregulation of the Industry shall start five (5)
months following the effectivity of this Act: Provided, however, That when the public interest so
requires, the President may accelerate the start of full deregulation upon the recommendation of
the DOE and the Department of Finance when the prices of crude oil and petroleum products in
the world market are declining and the value of the peso in relation to the US dollar is stable,
taking into account the relevant trends and prospects: Provided, further, That the foregoing
provisions notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG,
regular gasoline, and kerosene as socially-sensitive petroleum products and said petroleum
products shall be covered by the automatic pricing mechanism during the said period.
Upon the implementation of full deregulation as provided herein, the Transition Phase is deemed
terminated and the following laws are repealed:
(a) Republic Act No. 6173, as amended;
(b) Section 5 of Executive Order No. 172, as amended;
(c) Letter of Instruction No. 1431, dated October 15, 1984;
(d) Letter of Instruction No. 1441, dated November 15, 1984;
(e) Letter of Instruction No. 1460, dated May 9, 1985;
(f) Presidential Decree No. 1889; and
(g) Presidential Decree No. 1956, as amended by Executive Order No. 137:
Provided, however, That in case full deregulation is started by the President in exercise of the
authority provided in this Section, the foregoing laws shall continue to be in force and effect
with respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period.

Section 20. J urisdiction on Pricing of Piped Gas. Section 3 of Executive Order No. 172, is
hereby amended to read as follows:
"SEC. 3. Jurisdiction, Powers and Functions of the Board. The Board shall, upon proper
notice and hearing, fix and regulate the rate of schedule or prices of piped gas to be charged by
duly franchised gas companies which distribute gas by means of underground pipe system."


Section 21. OPSF Balance. All outstanding claims against OPSF as of the effectivity of this
Act, subject to the existing auditing rules and regulations of the Commission on Audit (COA),
shall be considered as accounts payable of the National Government. For this purpose, and any
law to the contrary notwithstanding, the reimbursement certificates issued by the DOE covering
the said outstanding claims shall be honored and accepted by the Bureau of Customs and the
Bureau of Internal Revenue as payment to the extent of ten percent (10%) per payment of the
tariff duties and specific taxes from the creditor-claimants against the OPSF until such claims
are settled in full: Provided, That the reimbursement certificates shall not be transferable.
Section 22. I nitial Public Offering. In compliance with the constitutional mandate to
encourage private enterprises to broaden their base of ownership and in recognition of the vital
role of oil in the national economy, any person or entity engaged in the oil refinery business
shall make a public offering through the stock exchange of at least ten percent (10%) of its
common stock within a period of three (3) years from the effectivity of this Act or the
commencement of its refinery operations: Provided, That no single person or entity shall be
allowed to own more than five percent (5%) of the stock offering: Provided, further, That any
crude oil refining company and any stockholder thereof shall not acquire, directly or indirectly,
any share of stock offered by any other crude oil refining company pursuant to his Section:
Provided, finally, That any such company which made the requisite public offering before the
effectivity of this Act shall be exempted from the requirement.

Section 23. I mplementing Rules and Regulations. The DOE, in coordination with the Board,
the DENR, DFA, Department of Labor and Employment (DOLE), Department of Health
(DOH), DOF, DTI, National Economic and Development Authority (NEDA) and TLRC, shall
formulate and issue the necessary implementing rules and regulations within sixty (60) days
after the effectivity of this Act.

Section 24. Penal Sanction. Any person who violates any of the provisions of this Act shall
suffer the penalty of three (3) months to one (1) year imprisonment and a fine ranging from Fifty
thousand pesos (P 50,000.00) to Three hundred thousand pesos (P 300,000.00).

Section 25. Public I nformation Campaign. The DOE, in coordination with the Board and the
Philippine Information Agency (PIA), shall undertake an information campaign to educate the
public on the deregulation program of the Industry.

Section 26. Budgetary Appropriations. Such amount as may be necessary to effectively
implement this Act shall be taken by the DOE form its annual appropriations, the DOE' Special
Fund created under Section 8 of Presidential Decree No. 910, as amended, and such amount
allocated under Section 10 of this Act.

Section 27. Separability Clause. If, for any reason, any section or provision of this Act is
declared unconstitutional or invalid, such parts not affected thereby shall remain in full force and

Section 28. Repealing Clause. All laws, Presidential decrees, executive orders, issuances,
rules and regulations or parts thereof, which are inconsistent with the provisions of this Act are
hereby repealed or immediately modified accordingly.

Section 29. Effectivity. This Act shall take effect upon its complete publication in at least two
(2) national newspapers of general circulation.
Approved: February 10, 1998



SECTION 1. It is hereby declared to be the national policy to prevent monopoly, hoarding,
injurious speculation, manipulation and profiteering with respect to the supply, distribution and
marketing of the following articles or commodities, whether imported or locally produced or
manufactured, and to fix the maximum prices, consistent with the policies of the State to
increase production and productivity, of such of these commodities as are essential to the public

(1) Medicines, drugs, surgical, optical and dental supplies;

(2) Essential food and foodstuffs including milk, soft drinks and other beverages;

(3) Animal and poultry feeds and veterinary supplies;

(4) Clothes, clothing, and sewing and weaving materials and supplies;

(5) Fuels, lubricants, crude oil and petroleum products, without prejudice to any action which
the Oil Industry Commission may hereafter take under the provisions of R.. 6173.

(6) Construction materials;

(7) Educational and office supplies and equipment;

(8) Fertilizers, insecticides, pesticides and other agricultural inputs;

(9) Motor vehicles and spare parts, tires, batteries, engines and other machineries;

(10) Household utensils, appliances and other household necessities;

(11) Footwear including all the components thereof.

SECTION 2. To carry out the above policy, there is hereby created a Price Control Council
hereinafter referred to as the "Council"), which shall be composed of the Secretary of Commerce
and Industry, the Secretary of Agriculture and Natural Resources, the Secretary of Health, the
Chairman of the National Economic Council, and three representatives of consumers one of
which shall be from qualified nominees of nationwide government employees' organization, the
second from qualified nominees of the private labor sector and the third from qualified nominees
of nationwide women's organization, who shall be appointed by the President of the Philippines
with the consent of the Commission on Appointments and who shall have the following
qualifications: a natural-born Filipino citizen; at least thirty years of age; and not connected with
the production, supply, distribution or marketing of any of the items mentioned in Section One:
provided, that the above-named government officials, except the Chairman, may authorize their
respective undersecretaries to represent them in the meetings of the Council. A majority of the
members shall constitute a quorum and four affirmative votes shall be necessary for any action
or decision of the Council: provided, further, that the representative of consumers shall receive
as emolument or compensation for services rendered to the Council a per diem of P50.00 for
every meeting attended: provided, finally, that the total emolument or compensation that may be
received by said representative of the consumers shall not exceed the amount of P1,000.00 a
month. The Council shall elect the Chairman from among themselves. The Director of
Commerce shall serve as the Executive Director of the Council and the Bureau of Commerce
(hereinafter referred to as the "Bureau") shall provide staff support to the Council.

Within 10 days after the assumption of office of the Chairman or any member of the Council,
the members thereof including the Executive Director of the Council shall submit a statement of
their assets and/or liabilities and a full and fair disclosure of all their interests and professional
connections as of the date of their assumption of office. A copy each of said statements shall be
filed with the office of the Secretary of the Senate and with the Office of the Secretary of the
House of Representatives.

In each province and chartered city, there shall be a local price council whose composition,
functions and scope of authority shall be determined by the Price Control Council, and which
shall be under its immediate control and supervision: provided, that the government employees,
the private labor sector and the women's organization in the area are each represented therein.

SECTION 3. The maximum prices of any of the articles or commodities mentioned in section
one hereof established by the Price Control Council under Republic Act No. 6124 and enforced
as of June 30, 1971, shall become effective immediately upon approval of this Act, subject to
such modifications as the Council may authorize under the provisions of Section 4 of this Act:
provided, that the Council shall, within thirty days after the filing of any petition for review, act
on the same in accordance with the guidelines established in Section 4 hereof.

SECTION 4. Whenever the market price of any of the articles or commodities mentioned in
Section One hereof has risen or threatens to rise by 20% or more over its price on March 1,
1970, or whenever the Council deems that the prevailing price should be reduced because it has
risen due to monopoly, hoarding, injurious speculation, manipulation and profiteering, the
Council shall, after notice and hearing, establish or order such maximum price as shall be fair,
just and reasonable: provided, that the maximum price shall not exceed the production cost plus
a mark-up of ten per centum thereof to the manufacturer or producer, five per centum of the net
cost of acquisitions to the wholesaler and ten per centum to the retailer if the articles or
commodities are locally manufactured, or the landed cost plus a markup of five per centum to
importer or indentor, and ten per centum to the retailer, if the articles or commodities are

The following factors shall be taken into consideration by the Price Control Council in the fixing
of the maximum prices of articles, commodities or goods to be used by the producer or

1. In case machineries are used, if obtained through credit, the increase in the price brought
about by the enforcement of the floating rate;

2. The increase in the interest for amortization purposes also brought about by the floating

3. Increase in the price of ingredients or materials used as a result of the floating rate:

(a) The increase in the cost of labor brought about by the increase of the minimum wage;

(b) Cost of raw materials, imported or domestic, and in case of imported raw materials, the
landed cost of the same, meaning the price paid, cost of transportation to the Philippines,
customs and other government imposts, storage fees and transportation expenses to the site of
the factory or plant;

(c) Increase in the cost of transportation and such other factors as may be brought about by the
increase in the cost of production.

The prices fixed by the Council shall become effective ten days after publication in two
newspapers of general circulation in the Philippines, one in English and one in the National

Production cost shall include all ordinary and necessary expenses paid or incurred in
manufacturing or producing the commodity, but shall not include marketing costs unless at least
70% of the total volume of sales are made directly by the manufacturer or producer.n no case
shall the production acquisition cost include any taxes which are passed on to consumers; and
marketing costs shall in no case exceed the average marketing cost for the period from 1966 to
1970, inclusive, as allowed by the Bureau of Internal Revenue and certified by an independent
certified public accountant.

SECTION 5. (a) Whenever any of the articles or commodities mentioned in Section One
hereof is in short supply, the Council, after notice and hearing, shall certify to the needs of local
producers or manufacturers thereof and recommend to the Monetary Board that the Central
Bank make available the foreign exchange to import adequate raw materials and supplies which
may be necessary to produce or manufacture said article or commodity in the quantity required
to cover the shortage in supply.

(b) If said article or commodity in short supply is not locally produced or manufactured or if
the local producers or manufacturers thereof can not fully cover the shortage in supply, the
Council after notice and hearing shall certify to such shortage or to the deficiency which the
local producers or manufacturers cannot cover, and recommend to the Monetary Board that the
Central Bank make available to importers the necessary foreign exchange to import said article
or commodity in the quantity required to cover the shortage in supply.
(c) If these measures should still fail to arrest the rise of the market prices of such article or
commodity in short supply, the Council, after notice and hearing, may recommend, and the
President may authorize, any agency of the government, including any government-owned or
controlled corporation, except government financial institutions, to import directly the article or
commodity in short supply for distribution in the local market through such channels as may be
chosen for the purpose.

SECTION 6. The Council shall promulgate such rules and regulations as shall be deemed
necessary for the effective implementation of the provisions of this Act subject to the approval
of the President of the Philippines. The rules and regulations that may be promulgated by the
Council shall take effect fifteen days after their publication once a week for two consecutive
weeks in at least two newspapers, one in English and another in the National Language of
general circulation in the Philippines. They shall be posted at the entrance of the City Hall or
Municipal Building of each city, municipality or municipal district in English and in the local

In the exercise of its powers, the Council, by unanimous vote shall have the power to issue,
under the signature and authority of the Chairman, subpoenas and subpoenas duces tecum,
which shall be duly entered in a record book indicating the facts attendant thereto, and,
notwithstanding the provisions of sections 81, 347 and 349 of the National Internal Revenue
Code, to require the Bureau of Internal Revenue to submit any sales, income or other tax returns
filed by any producer, manufacturer or retailer of products listed in section one hereof whenever
relevant to any public hearing and any inquiry under this Act.

The Council shall submit a quarterly report to Congress of all its actuations under this Act
beginning January 1, 1972 and every quarter thereafter.

SECTION 7. Imprisonment for a period of not less than six months nor more than five years
or a fine of not less than two thousand pesos nor more than twenty thousand pesos, or both, shall
be imposed upon any person who sells any commodity in excess of the maximum selling price
established by the Council, or who violates any provision of this Act or any order, rule or
regulation issued pursuant to the provisions of this Act. Provided, however, that in the case of
aliens, in addition to the penalty herein provided, the offender shall, upon conviction and after
service of sentence, be immediately deported without any further proceedings.

Whenever any of the offenses described above is committed by a corporation or association, the
president and each of the directors or managers of said corporation or association, or its agent or
representative in the Philippines in case of a foreign corporation or association who shall have
knowingly permitted or failed to prevent the commission of such offenses, shall be held liable as
principals thereof.

Any government official or employee, who by neglect or connivance has in any manner aided or
abetted in the violation or circumvention of the provisions of this Act, shall be held criminally
liable as co-principal under this section and shall, in addition, suffer the penalty of perpetual
absolute disqualification to hold public office. Any government official or employee who, being
duly authorized by the Council to act as its authorized agent, shall divulge to any person, or
make known in any other manner than may be authorized by law, any information regarding the
income, method of operation or other confidential information regarding the business of any
person, association or corporation, knowledge of which was acquired by him in the course of the
discharge of his official duties, shall be punished by both fine of not less than two thousand
pesos nor more than twenty thousand pesos and imprisonment of not less than two years nor
more than five years.

SECTION 8. If any provision of this Act or the applicability of such provision to any person
or circumstance shall be held invalid, the validity of the other provisions of this Act and the
applicability of such provisions to other persons or circumstances shall not be affected thereby.

SECTION 9. The President is hereby authorized to allot from the unprogrammed
appropriations for the Executive Departments from the General Fund under Republic Act No.
6130, the sum of Two hundred fifty thousand pesos for necessary operating expenses to carry
out the provisions of this Act during the fiscal year ending June 30, 1972, and under the next
General Appropriations Act, the sum of one million pesos for the same purpose during the fiscal
year ending June 30, 1973: provided, that not more than one hundred thousand pesos shall be
spent for personal services for a full year.

The Council and the Bureau of Commerce may call upon any official, agent, employee, agency
or instrumentality of the government for staff or any other assistance that they may deem
necessary to carry out the purposes of this Act and said agency or instrumentality of the
government shall, with the approval of the President, assign the official, agent, or employee and
provide the assistance requested by the Council and the Bureau of Commerce.

SECTION 10. The decisions of the Council on questions of fact shall be final and executory
while those involving questions of law shall be reviewable by the Supreme Court by certiorari.

SECTION 11. This Act takes effect upon its approval and shall continue in force up to June
30, 1973: provided, however, that convictions rendered under this Act or under the duly
promulgated orders, rules and regulations issued pursuant thereto shall remain valid and
enforceable, and prosecutions of offenses committed during the effectivity thereof shall
commence and shall not be barred until terminated by convictions or acquittal of the accused.
Approved: July 27, 1971

How to Slay the Oil Price Monster
By Walden Bello
8:49 pm | Tuesday, April 3rd, 2012
6 575 242
Leaders are elected in order to take decisive action to solve problems. What is
demanded from a leader isafter a careful weighing of costs and benefitsaction that cuts
the Gordian Knot of a seemingly complex reality.
President Aquino behaved in such a fashion when he pushed for the impeachment of
Chief Justice Renato Corona, boldly taking a risk after assessing the pros and cons of
such a course of action. He likewise acted decisively when he pushed through the $39
billion Conditional Cash Transfer Program to alleviate mass poverty over the objections
and hesitations of many of his allies in Congress.
The energy crisis awaits similar action from Mr. Aquino. So far, inaction and contending
views among his advisers and allies have marked the administrations performance in this
area. Part of the reason may have to do with the conservative bent of some of the
presidents key advisers. Part of the problem may be a sense among them that, unlike the
political sphere, the economy is a much more complex arena. Whatever the source of the
perceived inaction and indecisiveness of the government, the discourse of Mr. Aquinos
advisers and subordinates has increasingly defined the administrations image in the face
of mounting problems, and it is an image of the administration that just says no: no to
repealing the Oil Deregulation Law or other measures to discipline Big Oil, no to the
abolition or reduction in the Value Added Tax (VAT) on oil, no to significant wage
increases, no to consumer subsidies.
It is a posture that is increasingly indefensible as the price of gasoline is poised to breach
the record price of P60 per liter that it reached in 2008, triggering inflation while at the
same time threatening the return of recession. Inability to effectively address the rise in
the price of oil was one of the factors that eroded the legitimacy of the Arroyo
administration. Failure in this area may likewise sour President Aquinos relationship
with the citizenry despite his securing the conviction of Chief Justice Corona.
Market Forces or Monopoly?
Department of Energy (DOE) Secretary Rene Almendras is a well-intentioned person and
he knows the energy sector inside out. However, he has unfortunately come to personify
the administrations impotence in dealing with the oil issue. In his latest much-
circulated text message, Almendras has taken to invoking President Barack Obama to
justify his helplessness: Even the president of the United States acknowledged that he
has no silver bullet to solve this global problem of fuel prices. That is from one of the
worlds most powerful personalities.
Whether they intend to or not, Almendras and other advisers to P-noy project the attitude
that the Philippines is helpless in the face of international market forces. The reality
though is that rising oil prices reflect mainly monopoly pricing or corporate greed. True,
the rise in the price of oil stems partly from the peak oil phenomenon, or rising demand in
the context of declining supply, as well as from conjunctural political factors, like the
threat of war over Irans nuclear program. But the most significant contributor to the
price rise factor is the monopoly mark-up. Two of the three key players in the Philippine,
Chevron and Shell, are subsidiaries of Big Oil, and the third, Petron, simply follows their
lead. There is no competition to speak of among the oil majors. There is collusion, plain
and simple, and the figures are emphatic: the Wall Street Journal reported a few days
ago that Big Oil (ExxonMobil, Shell, BP, Texaco and Chevron) altogether had a first
quarter profit surge of 45 percent or $36 billion, which would place them on track to
surpassing the $80 billion they made in 2011. Contributing to that first-quarter surge
have been the 10 oil price increases the oil majors triggered in the Philippines just in the
first three months of 2012!
How do we deal with Big Oil? First of all, get rid of the fear of retaliation. Secretary
Almendras evoked this fear when he said last year, in response to demands on him to
discipline the oil companies, What can we do when the oil companies tell us they want
to back out? Let us not be naive: these companies cannot afford to leave the
Philippines, since it will remain a profitable market even if their superprofits are trimmed
by government action. A key rule in capitalist economics is, never, never leave a market
you dominate.
Is there empirical evidence for this claim? In late 2009, when there was a temporary
freeze on the price of oil owing to Typhoon Ondoy, none of the oil majors withdrew,
though they complained loudly. Why? Because the market was so profitable that they,
the majors, still recorded significant profits. According to Petron Corporation, in fact, the
company posted a net income of P4.3 billion in 2009. No, withdrawal is simply not a
credible option.
Second, get it into our heads that far from being helpless, we have the instruments to
mount an effective response to the problem. We may not be able to drive down oil
prices, but if we only liberate our minds and imagination, we can slow their rise
significantly, if not stabilize them.
Need for a Comprehensive Strategy
Of course, the long-run solution is to decrease reliance on oil as a fuel and shift to
renewable fuel sources in both transportation and power generation. But the short-run
challenge is slaying the oil price monster. What is needed is a comprehensive strategy to
tame the oil majors. So far, proposed solutions, while useful, have been advanced in a
largely piecemeal fashion, and these have largely been defensive moves with limited
Wage Increases
Raising the basic wage is critical to helping workers and their families contain the rapid
erosion of their living standards. In this regard, the increase in the basic wage proposed
by Secretary Rosalinda Baldoz of 13 to 21 pesos is very inadequate to allow workers to
deal with the acceleration in the cost of living brought about by the oil price rise. At a
minimum, workers should be granted a 100 peso increase either in the form of a
minimum wage increase or an increase in the cost of living allowance (COLA) in order to
allow them to at least recover a significant part though probably not all of their losses to
inflation over the last year.
Targeted Subsidies
Like wage increases, targeted subsidies are a good idea. When it comes to the
transportation sector, they are much better than mandating fare hike increases. In this
regard, the administration says that it has renewed the Pantawid Pasada program,
providing this time around a 1,200 peso subsidy for jeepneys compared to the 1,050
pesos given in 2011.
While a good idea, the implementation of the Pantawid Pasada program suffers from two
defects. The first is that it mainly benefits the owners of jeepneys because it awards the
cards only to owners who can produce the franchise, original registration certificate, and
route designation. The owner would merely calculate the 1,200 pesos into his
boundary, and this would amount to two days worth of owners income in one month.
The second is that the 1,200 pesos is too small in the context of rapidly rising oil
prices, being a one-time subsidy.
A more effective approach would be for the administration to 1) set up an ID system that
would allow jeepney drivers, not the owners and operators, to claim and calculate the
1,200 pesos into their boundary; and 2) renew the subsidy every three months should oil
prices continue to rise. Currently, the program costs the government $125 million.
Raising the program to 500 million pesos to cover four reloads in one year would not be
too much of a strain on the government, considering that there are as yet untapped
government to absorb the added costs, as we shall see below.
Suspending or Eliminating the VAT on Oil Products
Eliminating, suspending, or reducing VAT on oil is a suggestion that has increasingly
been floated by a diverse set of people, including Vice President Jejomar Binay, Senator
Ralph Recto, University of the Philippines Professor Ed Diokno, and Finance Secretary
Cesar Purisima. Immediate relief may indeed be the result of such a move, with some,
like Ibon Research, calculating that the price of oil could go down by as much as 6 pesos
a liter with VATs elimination.
Palace spokespeople like Abigail Valte have responded by saying that eliminating or
reducing VAT will mean a drop in government revenues that could negatively affect
many programs of the government. This is not convincing since, as Senator Recto has
pointed out, the revenue lost by reducing VAT can be offset by revenues from the
governments off-budget agencies such as the Philippine Amusement and Gaming
Corporation, Philippine Charity Sweepstakes Office, and the Malampaya project. Indeed,
freezing and rechanneling even a minute fraction of 20 per cent of the 1.8 trillion peso
government budget that the administration now allocates for paying for foreign debt that
is already paid many times over would more than make up for the revenue foregone by
eliminating VAT.
To be effective, however, there must be a foolproof method to determine that the
reduction or elimination of VAT on oil is reflected in the pump price, a task that must not
be underestimated given the sophisticated collusive practices of the oil majors. More
critical is the fact that while reducing or eliminating the VAT on oil might bring instant
relief and double consumers savings if prices go down, that relief will only be temporary
when prices are on a sharp upward trend. The savings will be wiped out sooner rather
than later. In short, intervening in some way to directly contain the rise in the price of oil
cannot be avoided in any viable solution, and this course of action will necessitate more
than the Department of Energy examining the books of the oil giants, a concession that,
to his credit, Mr. Almendras appears to have wrung from the oil majors.
The Need for Flexible Price Management
Given this need for government intervention, we propose the establishment of a flexible
price-setting mechanism and complementary measures that will bring significant
downward pressure on oil prices.
1. Fair Oil Price Setting Mechanism
Government must establish an oil price setting mechanism that will keep oil prices within
a range or band that is fair and affordable to consumers, while allowing oil companies a
reasonable level of profit. The range of the price band should be computed based on three
main factors, namely: the purchasing capacity of consumers (e.g., an indicator based on a
predetermined ratio of oil-related expenditures to total household expenditure), an
approximation of a fair and reasonable level of profit for oil companies, and the
prevailing price of oil in the international market. The price band must be reviewed and
reset on a monthly basis.
President Aquino must create a committee that will set and review the price band. The
committee should be convened by the Department of Energy, and should be composed of
representatives of government, consumers groups, the oil companies, and three
independent experts.
For this mechanism to work, the oil majors will have to bare their bookswhich, as
Secretary Almendras says, they have already assented to. Should the monthly balance
sheet of the oil corporations reflect a loss, the government will not be held accountable
for reimbursing this loss. Should the balance sheet reflect a more than moderate rise in
profitssay, for the sake of illustration, 2 per cent and abovethis surplus should be
subjected to a windfall profits tax that goes to fund government economic relief
2. Setting up a Strategic Oil Reserve
To protect itself from price and supply volatilities of oil in the international market,
government must seriously consider building oil reserves as a strategic objective, a
proposal that was earlier suggested by Secretary Almendras though he seems to have
been quiet about it recently. Establishing a strategic oil reserve will help provide
government the capability to cushion oil consumers from the vagaries inherent in the oil
market, and also provide it with the necessary stocks to influence prices.
President Aquino must direct the DOE to create a blueprint for the establishment and
management of such reserves, including identifying sources of funding for building the
countrys oil stocks. The DOE can look at tax revenues from oil companies as possible
sources of funding for the creation of the reserve.
Establishing an oil reserve might require legislation, but it would be best if the initiative
is be put in motion immediately by invoking the charter of the Philippine National Oil
Corporation (PNOC).
3. Strategic plan to regain control of Petron
President Aquino must begin developing a medium-term plan to regain control of Petron,
as a strategy to increase governments capability to intervene in the market and break the
oligopolistic tendencies of oil companies. Petrons share in the domestic oil market is
about 38 per cent, giving it the clout to effectively lead and influence oil prices in a
downward direction, as it did prior to its being privatized. Buying back Petron would
also bring back to the governments control one of the states most profitable companies
before it was privatized, a move that would undo probably the worst mistake of the
privatization program.
Regaining control of Petron can be achieved by government buying back at least 51% of
Petron shares, or by a combined action of acquiring a substantial share of Petron and
leveraging its share in the San Miguel Corporation Board, which now controls the oil
company. The President must direct the Department of Finance, the Department of
Budget and Management and the Department of Energy to lead this planning process, in
consultation with relevant members of the Cabinet.
While this process is in motion, the administration must exercise moral suasion on
Petron, which is now majority Filipino-owned, to serve as a price-setter. Industry
insiders still see as a model of effective moral suasion the pressure exercised by former
President Joseph Estradas Energy Secretary Mario Tiaoqui in keeping down prices.
These tactics included the threat of imposing negative sanctions.
Separate but related to these considerations is the issue of who controls Petron at present.
The president should direct the Securities and Exchange Commission and Department of
Justice to investigate who actually controls Petron at present, and if it is true that it has
indeed fallen under the control of a predatory family, then it is all the more important for
the government to put in motion a process of regaining control of the firm, perhaps
through sequestration using Republic Act 1379, the Forfeiture Law, which allows
government to confiscate the ill gotten wealth of public officials.
4. Support UN Advocacy for International Oil Price Controls
The Philippines must support the United Nations call for an international negotiation to
determine a fair cost of oil, and to limit international oil price movements within a certain
band. However, this should not be a conference limited to OPEC and the G 20 but a UN-
sponsored meeting bringing together the oil-consuming and oil-producing nations, along
with the oil majors.
The Philippines must actively lead in creating an international coalition of governments
to support a price control system. This advocacy can begin by promoting a united front
on the issue in the Association of Southeast Asian Nations and the East Asian Summit.
Legal Considerations
This is all fine and good but would not interventionist acts like those proposed above be,
in fact, precluded by law? Is not the government powerless to act owing to the Oil
Deregulation Law (Republic Act No. 8479)? The answer is no. The president can
invoke Section 14 e of the law as the former administration did, under popular pressure,
with EO 839 on Oct 23, 2009, to protect consumers against predatory pricing by oil
companies in the aftermath of Typhoon Ondoy. Section 14 e reads: In times of national
emergency, when the public interest so requires, the Department of Energy (DOE) may,
during the emergency and under reasonable terms prescribed by it, temporarily take over
or direct the operation of any person or entity engaged in the industry.
By any definition, a situation of unregulated, sharp price increases at the pump brought
about by a more than 400 per cent rise in the price of crude in three years, which sparks
inflation and brings an economy to the edge of recession at the same time, qualifies as an
national emergency.
However, to enhance the effectiveness of temporary government intervention, it will be
necessary to amend the Oil Deregulation Law, if one cannot scrap it altogether. In other
words, Congress must review and amend RA 8479 with the goal of introducing
provisions that will (1) institutionalize flexible intervention in the market to protect the
interest of retail oil consumers through methods such as the Flexible Oil Pricing
Mechanism, (2) integrate the purchasing capacity of consumers as an important factor in
considering the operation of the Flexible Oil Pricing Mechanism, (3) formally define a
condition of national hardship brought about by extreme oil price volatility as an
emergency, and (4) allow better monitoring and ensuring the compliance of oil
companies in providing reports on, among other things, oil price and supply as well as on
their revenues to the DOE.
The foregoing program, which combines subsidies and tax reductions with mechanisms
to moderate the rise in the price of oil, if implemented with sensitivity cum
determination, will achieve two things: 1) it will significantly slow down the erosion of
peoples living standards by lowering inflation; and 2) it will eliminate the chaos induced
by oil prices that rise arbitrarily and thus allow households and firms to more rationally
plan their production and consumption.
That there is no smooth road to containing the drastic rise in the price of oil. While
reasonable, these measures will provoke much lightning and thunder from the oil majors
and their propagandists. There might even be threats of supply disruption emanating from
them. Such threats must, however, be expected from them. Carrying them out is another
thing, for this will cross the line to illegality, and the oil majors will find it difficult to
take this course on pain of courting both popular condemnation and legal action from the
government that would significantly affect the future profitability of their operations in
the Philippines.
The flexible price-setting mechanism and its associated components outlined above are
reasonable. They will not harm the oil majors interests; they will simply encourage them
to be satisfied with moderate profits.
The deepening of the energy crisis must put an end to the discussion and debate on
strategy among the presidents advisers. It is time the president intervened and rallied the
country against the economic crisis in the same way he has rallied it against corruption.
He needs to cut the Gordian Knot of the seemingly intractable problem that is the oil
price conundrum. The comprehensive strategy we propose may not be perfect, but it
provides a sword that he can wield to get to the heart of the problem.
*Inq.net columnist Walden Bello represents the party-list Akbayan in the House of

Read more: http://opinion.inquirer.net/26189/how-to-slay-the-oil-price-
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