Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

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HOUSE BILL No. /-2 1

INTRODUCED BY ANAKPAWIS PARTY-LIST REPRESENTATIVE
RAFAEL V. MARIANO

EXPLANATORY NOTE

For the past 12 years since the downstream oil industry was deregulated
in 1998 through Republic Act 8479, big oil companies, as well as so-
called new players had a free reign in the pricing of oil products -
resulting to almost weekly oil price adjustments to the disadvantage of
consumers and the Filipino people.

According to non-government independent think tank IBON, the
onslaught of foreign monopolies on the toiling people has been most
visible in the behavior of oil prices. Contrary to the promise of
deregulation, oi! prices have increased 139 times since deregulation in
April 1996 to 2008, or in effect every two weeks.

From 2009 to mid-2010, gasoline prices increased 40 times (cumulative
36.00 in adjustments) and decreased 25 times (curnulative P18.25 in
adjustments) while diesel prices increased 33 times (P30.25) and
decreased 34 times (P23.50}. (Source: IBON, Department of Energy)

The domestic downstream oil industry is currently dominated by two (2)
major oil refining and marketing companies; Petron and Pilipinas Shell. A
third oil refiner and marketer, Caltex Philippines Inc. converted its
86,500 bbl/d refinery into an import terminal in 2003 and now operates
as a plain marketing and distributing company under the name
‘Chevron’, but maintains its Caltex brand.

Philippine National Oil Company (PNOC), a state-owned company, and
Saudi Aramco jointly own Petron; each with a 40 percent stake while the
public holds the remaining 20 percent share. Petron operates a 180,000
bbl/d refinery and over 1,200 gasoline stations nationwide; Pilipinas


Shell has a 110,000 bbi/d refinery and about 800 gasoline stations; and
Caltex/Chevron has 2 import terminals, and around 850 retail gas
stations nationwide. Caltex built the first petroleum refinery in 1954.

Operating like a cartel, major oil companies Petron, Shell and Chevron as
well as new oil players consistently manipulated oil prices and overpriced
oil products by using the fluctuating world crude oil prices and peso-
dollar exchange as convenient excuses.

The Downstream Oil Deregulation Act of 1998 removed all government
control over the pricing of oil products and gave oil firms a free hand to
dictate local pump prices.

Oil price hikes have become so frequent that even the Department of
Energy (DOE) admitted that oil companies only inform them of price
hikes through text or short messaging system (SMS).

The government of former President Gloria Macapagal-Arroyo was not
able to curb the institutionalized practice of oil companies of pushing for
frequent increases.

In fact, the previous administration has done very little to prevent oil
price hikes. Since 2001, oil pump prices have more than doubled. Oil
price increases under Arroyo’s term comprise almost 42 percent of total
increases since deregulation.

Based on estimates, prices of premium, unleaded and regular gasoline
have increased by almost 160 to 170 percent during Arroyo’s nine-year
presidency. The high price of oil was even more exacerbated with the
imposition of 12 percent Value Added Tax (VAT) on all oil products in
2005. (Source: BON, Department of Energy)

DOE was merely reduced to being a monitoring body for oil price hikes
and claimed that the government has no Power or ‘teeth’ to control oil
prices under a deregulated environment.

After typhoons and calamities struck the country in October 2009, the
Rovernment issucd. Executive Order 839 that supposedly set price ceiling
on oil products. But as soon as the ‘price freeze’ was lifted, frequent oil
price hikes again inundated consumers. In 2010, oil prices have been in
the uptrend again especially during the E! Nino phenomenon.

Aside from price manipulation, oil companies have always been guilty of
overpricing petroleum products. .

In a study, the National Economic and Development Authority (NEDA)
¢stimated that that oil prices are overpriced by as much as P8.12 per liter
in January 2010 and that domestic oil prices are relatively high
compared to adjustments in world crude prices.


Estimates by cause-oriented groups showed that local oil products are
overpriced by almost P7 per liter at the end of 2010.

Soaring oil prices and increasing cost of living have aggravated the
country’s poverty situation. According to the Social Weather Station
(SWS) survey, hunger among Filipinos worsened to historic levels. SWS’
year-end 2010 survey showed that 3.4 million families have gone hungry
because they lacked anything to eat.

This is expected to worsen in 2011, as the World Bank warned that
“global food prices are rising to dangerous levels and threaten tens of
millions of poor people around the world.”

Even if the DoE published in its website the official formula in
determining pump prices, it is not enough to determine if the unabated
price hikes imposed by oil companies are justified.

Oil companies have abused the deregulation law for their ultimate
objective of profiteering at the expense of consumers grueling from the
domino effect of excessive oil prices on basic goods, services and utilities.

Oil companies amassed billions in profits over the years. In the Top 1000
Corporations in the Philippines 2009, Petron Corp. placed first with
recorded gross revenues of P268.8 billion in 2008, 26.2 percent higher
year on year. Two other oil companies, Pilipinas Shell Petroleum Corp.
(2nd) and Chevron Philippines, Inc. (5th) made it to the top five in the
Top 1000 Corporations.

Up to the end of Arroyo’s term, the issues of price speculation, transfer
pricing and overcharging - which are manifestations of monopoly pricing
and super-profits of oil companies have not been resolved.

While the current administration of President Simeon Benigno Aquino III
declared that it is open to amending the Oil Deregulation Law, it is not
included among the priority bills set by the Legislative-Executive
Development Advisory Council {LEDAC).

The country needs a downstream oil industry that is not privatized, not
deregulated and not controlled by big businesses. What we need is a
downstream oil industry that is nationalized, state-owned, and effectively
controlled by the Filipino people

In his study “No hope for fair prices under deregulation”, researcher
Arnold Padilla stated that “a misleading and often. recycled argument
against proposals to regulate the country’s downstream oil industry is
the discredited Oil Price Stabilization Fund (OPSF).”


“OPSF failed because it was not used strictly as a buffer fund but was
designed to protect the profits of the Big Three during oil price shocks.
Established under Presidential Decree (PD) 1956 on Oct 10, 1984, oil
firms replenished the OPSF when their pump prices were higher than
world prices and withdrew from it when the reverse happened. To prevent
the OPSF from drying up, government delayed rolling back the pump
price even if world prices fell thus imposing the burden to refill the OPSF
on hapless consumers while protecting the profits of the Big Three.”

The study further cited, ‘in the past, Congress initiated reviews and
proposed amendments on the downstream oil industry deregulation law
but failed to propose the total repealing of the law, further allowing oil
companies to adjust prices at their whim.

“In 2005, the DOE formed an “independent” body to review Republic Act
8479 and among its findings was that ‘subsidizing oil prices (through the
OPSF} is not feasible in a regime of rising crude prices due to lack of
government resources.”

“While a buffer fund will be needed in a regime of regulated oil prices,
such fund is entirely different from the flawed OPSF. It must be
emphasized that it is possible to establish a buffer fund without passing
on the burden to the taxpayers and consumers, One way of doing it is for
the buffer fund to be financed by government earnings and savings from
its increased participation in a regulated downstream oil industry.”

“Under this proposal, the government will become the exclusive importer
of crude oil and petroleum products. As such, the country can expand
potential oil sources and shop for the cheapest available oil. Bilateral
agreements with state-owned companies from oil exporting countries may
be pursued under special arrangements, including commodity swaps,
which can provide the country considerable discounts. Savings and
earnings from these transactions can be used to finance the buffer fund.
Such system of centralized procurement also addresses the concern that
a buffer fund wil! not work because of rising global oil prices.”

The study further recommended that the national government should
also participate in storing, refining and retailing oil products in the
country and use whatever earnings it will generate from these activities
to finance the proposed buffer fund. Initially, the buffer fund can be
financed through allocating a portion of the national budget and when
unutilized within the fiscal year should be carried over to the next fiscal
year. Uncollected taxes from the oil companies, such as the P21 billion in
unpaid custom duties of Shell, can also serve as seed money for.the
buffer fund.

“A strict set of guidelines must be drawn up on when the government can
tap into the buffer fund to prevent unwarranted utilization and
corruption. A trigger price may be computed by the Department of


Energy (DOE) that will determine when the buffer fund should be used to
mitigate sudden and huge increases in oil prices.”

There are alternatives to the Downstream Oil Industry deregulation Act
and a concrete set of measures to implement them are available.

In view of the foregoing, approval of this bill is highly and earnestly
sought.

‘AEL V. MARIANO


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL KO. 2317

INTRODUCED BY ANAKPAWIS PARTY-LIST REPRESENTATIVE
RAFAEL V. MARIANO

AN ACT REPEALING REPUBLIC ACT 8479, OTHERWISE KNOWN AS:
AN ACT DEREGULATING THE DOWNSTREAM OIL INDUSTRY AND
FOR OTHER PURPOSES

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

SECTION 1. Any provision of law to the contrary notwithstanding,
Republic Act numbered 8479 entitled “An Act Deregulating the
Downstream Oi! Industry and for other purposes.” is hereby repealed.

SECTION 2. This Act shall take effect fifteen (15) days after the
completion of its publication.

Approved.