With the newest wave of oil price increases, gasoline prices have once more approached the P60 barrier, and have raised concerns about what the government is doing to alleviate the situation. However, the usual catcalls and cries of protest coming from the Left aren't particularly helpful. It does compel me to think about what can be done to solve the problem of high oil prices.
It's useless to return to the days of government subsidy and the illusion of cheap gas. The government will simply wind up throwing money down a huge gaping pit, from which there will be no end. The government would be better off using those resources to find ways and means to create opportunities for our countrymen to rise up from poverty.
Transportation strikes are also not helpful, since they have a stronger impact on the commuting public rather than sending a message to the government. By stranding commuters, the transportation groups do not generate any sympathy for their cause, and may run into trouble regarding their franchises, since they are a public service. However, transportation groups may point to today's fare increase (P 0.50) as a direct result of their transportation 'caravan' (they seem to be loath to label it a strike.), and claim some form of victory.
Another issue is the burden of the value-added tax (VAT) on gasoline, upon which, apparently, an excise tax is already being levied. The government can claim that the VAT is needed for it to provide services to the public, but, unless the government shows any concrete proof of the VAT's positive effect on government services, the removal of the VAT from gasoline products could provide needed relief for Filipinos.
Lastly, I wonder if any audit of the oil companies, especially the Big Three (Shell, Petron, Chevron), can be done to determine whether, in fact, the oil companies are pricing their products fairly. It seems to me that, when oil prices go up, the oil companies are quick to jack up their prices, but, when the oil prices go down, they hem and haw and cite catchphrases like "underrecoveries" to explain their hesitance to lower prices. Perhaps an audit of their books is in order to see whether they've been fair or whether they've been screwing the public via their profiteering.
The main problem of our country is that we do not have any oil resources of our own, and we are subject to the ever-changing landscape of geopolitics; the current oil problem appears to be primarily due to tensions in Iran over its nuclear program. Unless we can acquire resources of our own, or aggressively look into alternative sources of fuel, we will be powerless to do anything about high oil prices.
5 comments:
Regarding VAT on oil, it's interesting to note what Mar Roxas has to say about it back in 2008:
http://www.youtube.com/watch?v=m_N4lxTqrc4
also here: http://www.box.com/s/fe58e600dd45e7b96598
Meanwhile, here's what Mar and the Aquino government has to say about the VAT right now:
http://www.philstar.com/Article.aspx?articleId=787984&publicationSubCategoryId=63
I agree with you there about how useless it would be to return to oil regulation, government subsidy/cheap gases.
If the government does scrap the oil deregulation law and returns to subsidizing oil and regulation of prices, it will be stuck in a "damn if you do, damn if you don't situation".
Here's why: Suppose oil firms want to raise prices because of international market conditions. Once they raise this idea, I'd be surprised if the leftists don't get mad and don't start protest rallies, even if price hikes are needed. The leftists are very close-minded people.
As a result, government will be stuck in a dilemma. Will it disobey the wishes of the leftist groups and approve the petition for an oil price hike? In this case, the government will suffer in terms of popularity. Politicians won't like the result.
Or will the government reject petitions for oil price hikes? In this case, the big 3 will definitely respond by cutting back on oil supply, resulting in those long lines it was said was common in the old days.
If cutting back on oil supply/imports doesn't work, the oil firms will threaten us with the need to close down. This means that the government will need to subsidize oil. Who's the real loser now in that case?
Of course, the leftists might say "Don't subsidize the oil firms' profits!" But the oil firms need decent returns-on-investments (not necessarily the same as profit and revenues). If they don't get fair ROIs, they close down, which means even more work for the government which will then need to open its own oil firms.
One professor I've talked to even claims that during the days of government subsidies, the big 3 had higher returns-on-equity (which means the big 3 was more profitable back then). This is not surprising actually, since in a regulated industry, entry of new firms is difficult, if not impossible.
In short, I think regardless if the industry is regulated or deregulated, the oil firms, especially the big 3, will find a way to adjust.
======================
Regarding audits, there are many previous studies/audits done before actually (mainly by private accounting firms and government-commissioned private groups). They all resulted to the conclusions that oil firms price their products fairly. Here are some:
http://www.doe.gov.ph/OPM/SGV%20-%20UA&P%20Study%20on%20Oil%20Prices.pdf
http://www.oocities.org/afdb/irc_report.pdf
http://pascn.pids.gov.ph/DiscList/d00/s00-14.pdf
President Aquino and the DOE has commissioned a new group to undertake similar studies, but I honestly don't think their results would be any different to those done previously.
===================
At the same time, I think there needs to be more improvement in many things. For me, it's clear that either:
1. The accusations against the oil firms are true, and that they just find a way to hide their excess profits. (Some say if you have a good accountant, this is quite possible.)
OR
2. The accusations are false but public needs to be educated more on matters like the process itself (import to refining to selling/distributing), how prices are determined (does the world price for intermediate goods, i.e. crude oil, really matter that much, or is it other factors like $ exchange rate, refining costs, salaries, and the final demand for the final product that determine prices).
It's also important to educate the public regarding the difference between profits, revenues, and various returns-on-investment. The lay person, will understandably often mix up these accounting and financial concepts.
If this is the case, then the government/DOE, and the oil firms' spokespersons suck, or they don't really care to educate the public enough.
I also do notice how leftists (and socialists, and other similar ideologies) tend to be short-term minded in terms of economic analysis. Or maybe they just love criticizing the government without offering (realistic) alternatives.
==============================
On a final note, let's summarize some of the common comments against the oil firms and separate facts from opinion, and which of these have a point, and which don't:
#1: Oil firms collude. They raise and lower prices at nearly the same time, if not the exact same time.
-This is not surprising since they import from only one or a few sources. If your competitor (especially the neighboring ones) lowers prices, you should naturally follow as well if you don't want to lose market share (the reverse, i.e. why firms raise prices at the same time is similar but more interesting and harder to explain).
#2 Oil in the provinces is more expensive.
-Easy. Transportation costs are higher.
#3 Oil firms overprice.
-The most interesting. It really depends on what your perception of "fair price" and "fair profit" is. (For example is 6 billion pesos of profit fair enough? Too high? How about 1 million? too low? It's clear that "fair profit" is quite arbitrary.)
At the end of the day, the most important thing to explore, though, is what to do about the problem.
On a general note, it's clear that for this country to move forward, we need more entrepreneurs who will provide more jobs for all and promote a healthy, ethical, and competitive business environment. Note how Filipinos tend to be trained to look for jobs, but not usually trained to create jobs. Result? They go abroad instead.
We also need public officials who will promote healthy competition in all business industries. For real capitalism to flourish and result in fair opportunities for all, more competition is important.
Unfortunately, all we have now are business industries dominated by a few corrupt oligarchs (a.k.a. cronies) in cahoots with corrupt politicians to enhance the political and business interests of one another.
It's no wonder how it tends to be quite difficult for foreign investors and ordinary Filipino investors to invest in the Philippines.
Post a Comment