A ‘residual cash pool’ of P370 million from the extinct Oil Price Stabilization Fund (OPSF) have been remitted recently by the Department of Energy (DOE) to the national government so it can add up to the state’s budget for the coronavirus pandemic response.
“At DOE, we have some stranded money in our coffers, like the balance of the OPSF which was at almost P370 million, so we returned that to the national treasury,” Energy Secretary Alfonso G. Cusi said.
The remitted amount, he specified, had been intended to help in the government’s need for financial resources to build up its strategy on tackling the impact of the health crisis.
“It will help in our fight against Covid-19. Even if the amount is small, that will help, because that will also have multiplier effect on the economy when used. So it will help in the economic recovery of the country,” Cusi opined.
To recall, the abolition of the OPSF was enforced in mid-1996, two years prior to the deregulation of the downstream oil industry – and it was a decision set forth by the government that time because it owed the oil companies massive financial obligations that reached as high as P5.0 billion.
The deregulation of the country’s oil market had been primarily advanced following the scrapping of the OPSF, so the subsidies in the industry then could finally be ditched and that the sector’s pricing mechanism would shift to a system that will reflect actual developments and shall work based on market forces.
The oil industry buffer fund was implemented from 1987 to 1996; and it was set up to absorb or cover for the fluctuations in crude and foreign exchange costs – primarily the level that had not been allowed to be passed on to consumers as the downstream oil sector was still under the regulation then of the defunct Energy Regulatory Board.
The government initially shelled out the seed money for the establishment of the OPSF, but eventually, the oil companies contributed to the fund whenever global oil prices were low; and then withdrew from it when oil prices were high.
Nevertheless, the lingering steep rise in international oil prices in the early part of the 1990s triggered the depletion of the fund – and that practically left the State heavily subsidizing oil prices.
Essentially, the OPSF ended up deficit-ridden and the government turned out to be heavily indebted to the oil companies, hence, the energy department opted to shift oil market policy to deregulation.
Every time there are massive oil price hikes in the country, the revival of the OPSF is still consistently revived in political debates, but this is generally frowned upon by the DOE and the industry players as they’ve already experienced the financial curse of a buffer fund.