Repeal of the Oil Deregulation Law

Published January 23, 2021, 6:00 AM

by Atty. Vic Dimagiba

Last week, I participated as a resource person in the House of Representatives Committee on Energy’s initial deliberation on various bills concerning the Oil Deregulation Law.  House Bill No.  4711 caught my attention because it proposed to repeal Republic Act Number 8749, the Oil Deregulation Law.  There were other Bills that sought to strengthen  the oil regulatory agency powers to monitor prices of fuel products and catch, prosecute and jail price collusion and cartel. What is common to them is that they all ascribe consumer protection as their objective.

The Oil Deregulation Law, signed in 1996, was unsuccessfully challenged as void before the Supreme Court by the late congressman/governor  Enrique “Tet “ Garcia. At that time there were three oil refineries (the Big 3) that dominated the market. One argument raised in the case was the existence of an oligopoly and that the Big 3 had colluded to engage in unlawful cartel-like behavior when the oil firms changed prices at the same time and at the same rate. That argument was not accepted by the Supreme Court as one economist calls fuel product a “homogenous product “where firms tend to set similar prices at the same time and at the same price to preserve market share. The Supreme Court counselled (or obiter dictum)  that the remedy is not to declare the law void but to initiate an   anti-trust case against any cartel.

          This same issue dominated the congressional hearing. One must note however, that  thereare marked differences in the personalities of the market participants now. First, there are no operating refineries in the country. Second the Big 3 oil companies are now pure traders and importers of finished petroleum products. Third, there are close to twenty independent oil companies importing and selling fuel products carrying their own brands nationwide. Fourth, we now have an anti-trust agency.

       Under the current practice, all oil companies adjust prices weekly at the same time and at the same price and send notices of their price adjustments to theoil  regulatory agency indicating the price adjustment, the product and the time of effectivity. These notices are posted in the official website of the agency. According to the oil regulatory agency,  the purpose of the posting in the website is to inform the consumers of the prices as adjusted.

There were only intelligible answers to questions on the relationship of the price vis a vis the inventory of the oil companies and whether there were any investigations of price collusion and anti-competitive practices.  So, if consumers would like to ask these questions, where  can consumers go  if they wish to pursue the Supreme Court advice that the remedy is seek anti-trust investigation?

       The repeal of the Oil Deregulation Law has its merits. A quasi-judicial entity that shall conduct regular hearings on individual petitions of price adjustment by the oil companies will be created and the  dominating practice of setting oil prices based on a global price index called Mean of Platte Singapore will stop. Each petition will submit its acquisition cost, taxes, transportation, warehousing and other administrative expenses. There will be notices and hearings. Any group may support or oppose the rate hike petition. There is assurances of transparency and good governance in the process. The Bill will create a Special Buffer Fund that shall cushion impact of high price adjustment which will be funded from the excise taxes collected by the Train Law on fuel products.

In November 2019, as a consumer advocate, I sought the anti-trust agency to investigate the pricing formula of the oil regulatory agency .A year after ,it confirmed that the pricing formula does not really account for the costs beyond the importation, i.e. storage, handling, distribution , retailing as well as the biofuels program. If that was the case, I then sought further clarification as to whether these other costs are likewise  identical for all the oil companies. 

  One piece of information shared in the congressional hearing of the existence of a Memorandum of Agreement between the oil regulatory agency  and the anti-trust agency dampens consumer enthusiasm on the independence of the implementing agencies to protect consumer interest.

The initiatives of Congress to review the policy of the oil deregulation is a timely activity. The challenge is whether there will be sufficient time for such in the remaining sessions of the 18th Congress. The good news though is that the seeds of regulation have been planted and the next Congress/es shall continue to review the policy. The Supreme Court have repeatedly held that they will not act as arbiter on purely policy matters that rest solely with Congress or the Executive branches of government.

Atty. Vic Dimagiba is President of Laban Konsyumer Inc.

Email at [email protected]