Done deal in principle but NDCC reviewing it

The government and local oil companies have reached a compromise on the controversial Executive Order 839—selective lifting of the price cap and issuance of discount coupons for fuel in areas still reeling from calamities.

On Wednesday, acting Justice Secretary Agnes Devanadera disclosed that the joint Department of Energy-Department of Justice (DOE-DOJ) Task Force on Oil Deregulation and the oil firms have agreed in principle on the lifting of Executive Order 839 in areas that have already recovered from the series of typhoons that ravaged the Philippine main island of Luzon.

Tropical storm Ondoy (international name Ketsana) flooded many parts of Metro Manila and nearby provinces when it dumped more than a month’s worth of rain on September 26. Typhoon Pepeng (international name Parma) struck Northern Luzon a week later and hovered over the region for days.

Devanadera said that for those areas still under a state of calamity, oil firm executives proposed—in lieu of a price freeze—they would issue “discount coupons” each worth P2 on gasoline, diesel and other oil products.

She added that coupon concept came from Petron, one of the so-called Big 3, and that Sea Oil, a small independent player, submitted a similar proposal.

“They submitted a list of discounts on prices of various oil products,” she said, adding that the areas where this will be distributed included the provinces of Laguna, Pangasinan, La Union, Ilocos Norte and Ilocos Sur.

Still subject to review

Devanadera, however, did not say when the compromise agreement would be implemented, even as she assured that it was a done deal.

She explained that the National Disaster Coordinating Council (NDCC) is reviewing the agreement to ensure that the provinces and municipalities that would benefit from oil price discounts are those still struggling to recover from the effect of the recent typhoons.

After the review, a recommendation would be given to President Gloria Arroyo.

“It [the compromise agreement] is now being validated by the NDCC,” Devanadera added. “It will come out with a decision in due time. We’re moving toward that [selected lifting the Executive Order].”

Meanwhile, she maintained that Executive Order 839 has been beneficial to the public given that it makes prices of basic goods and commodities more manageable because of stable prices of transportation.

Devanadera said the oil firms have been “cooperative with the government,” adding their compliance with the order is a good gesture.

She also stressed that the Executive Order does not violate, and is in fact in consonance with, the Oil Deregulation Law.

She explained that under Section 14 (e) of the Oil Deregulation Law, the government, through the Department of Energy and its secretary, has the power to temporarily take over or direct the operation of players in the oil industry in times of national emergencies and calamities.

President’s call

In a related development, Vice President Noli de Castro told reporters on the sidelines of the National Price Coordinating Council meeting, also on Wednesday, that the government would possibly implement selective price control.

But it would be up to President Arroyo to decide whether the price control will be lifted and how, said de Castro, who co-chairs the council.

Trade Secretary Peter Favila, citing the National Disaster Coordinating Council, said that some local governments in the National Capital Region (Metro Manila), Cordillera Administrative Region, Ilocos Region and Southern Tagalog remain in dire situations.

He added that the private sector has voiced out its concerns on price control during the council meeting, but he refused to disclose those recommendations to media.

“The government and the private sector have agreed . . . the private sector have given their inputs, and the Department of Trade and Industry will make its recommendations to the President,” Favila said. “In the next few days, we will make some announcements based on these recommendations.”

Also on Wednesday, Raul Concepcion, Consumer and Oil Price Watch chairman, said that purchases of the 11-kilogram tank of cooking gas must be “subsidized for the poor.”

Administrator Rafael Coscolluela of the Sugar Regulatory Administration said, meanwhile, that they have recommended that sugar be retailed at P41 a kilo. At present, sugar is sold at P38 a kilo, at which level sugar retailers complained they are selling at a loss.

On the verge of closing

For Pilipinas Shell Petroleum Corp., one of the “Big 3,” the compromise agreement between government and the oil firms could not come soon it enough.

Willie Sarmiento, Shell’s vice president for finance, testified in a Regional Trial Court of Makati hearing that they would be unable to meet the demands of the petroleum products, and that they are on the verge of shutting down because of mounting losses.

Shell had earlier filed a petition asking the court for a temporary restraining order on Executive Order 839.

Sarmiento said, “The price ceiling definitely had a negative impact on Shell’s working capital, which is used to fund its importation of oil, service its substantial debts, pay for its maintenance and overhead expenses, labor costs, among others, which directly gravely damage Shell’s credit spending, business reputation, operational integrity and credibility as a local and international oil industry player.”

He added that with the increasing prices of oil, Shell was also in the danger of not being able to fulfill contractual obligations to its suppliers and dealers. “As it is now, Shell is having difficulties in servicing its substantial debts. Thus, Shell’s ability to supply the local market as well as its credibility, reputation and credit standing are all gravely affected and suffer tremendously both locally and abroad.”

He explained that the cost of crude and petroleum products being imported by the oil firm were “not stagnant and are also affected by Mean of Platts Singapore and FOREX.”

“The prices of crude and petroleum products imported to replenish Shell’s inventory are more expensive than the past inventories and sales due to the increase in oil world market,” he added.

The executive further revealed that the Shell has already incurred losses of about P81 million from October 26 to 31, adding that this losses continues daily since the oil firm is compelled to sell its products at lower prices.

Policy review

Meanwhile, the conflict between the government and the big oil companies has pushed a House panel to hasten the approval of a measure amending the Oil Deregulation Law in a bid to increase competition within the downstream oil industry and bring down oil prices to reasonable levels.

The House Committee on Energy also seeks to strengthen the power of the Department of Energy, besides amending salient provisions of Republic Act 8479, or the “Downstream Oil Industry Deregulation Act.”

Rep. Joseph Emilio Abaya of Cavite, one of the principal authors of a substituted bill amending Republic Act 8479, underscored the need to encourage greater competition at the retail levels.

“The retail industry has to be freed from the influence of big oil companies which own most of the retail outlets all over the country,” Abaya said.

He explained that with a greater margin of competition, pump prices would hopefully be brought to reasonable levels. He added that the measure seeks to render transparent the pricing of oil products.

Meanwhile, the government rejected a proposal calling for a government takeover of the oil industry in response of a looming supply shortage.

In a press conference in Malacañang also on Wednesday, Energy Secretary Angelo Reyes said that nationalization of the industry was a very extreme option and that the government has not considered it as an option.

Lorelei Fajardo, the deputy presidential spokesman, echoed Reyes in a separate press conference. “We don’t want that [government takeover] to happen, and we will try everything so we won’t reach that point. That would be the worst-case scenario once we run out of options.”
WILLIAM B. DEPASUPIL, BEN ARNOLD O. DE VERA, CRIS G. ODRONIA, FRANK LLOYD TIONGSON AND ANGELO S. SAMONTE