As fuel prices are expected to spike by the last week of August, state-run think tank Philippine Institute for Development Studies (PIDS) maintained that deregulation remains the more viable policy path over reviving the Oil Price Stabilization Fund (OPSF).

According to Adoracion Navarro, senior research fellow at PIDS, an oil buffer fund such as the OPSF would pose more risks than benefits. Navarro said this in an Aug. 21 response to the Senate committee on ways and means’ questions on the proposal to revert to regulation of the downstream oil industry.

The OPSF is a special fund to minimize frequent oil price changes in the country brought about by exchange rate adjustments or an increase in global crude oil and imported petroleum.

This was introduced in 1984, but was then abolished by 1998 due to financial burden on the side of the government, which in turn, increased the national debt.

Navarro said that calls to revive the OPSF tend to resurface frequently, especially during times of oil price spikes. These calls peaked during the 2022 elections, when some politicians proposed reinstating the fund as a way to supposedly address rising fuel prices caused by the Russia-Ukraine conflict.

“This is nothing new as over the years since deregulation, calls for reversing the policy recur every now and then, especially during price upheavals driven by external events,” she said.

“But historically, the OPSF proved fiscally unsustainable and administratively problematic.”

Navarro elaborated that reviving the fund could lead to financing gaps, legal disputes, lack of transparency, and the need for government bailouts, among other issues.

“The remaining oil price stabilization funds in the world (e.g., Thailand, Vietnam, Malawi, and Chile) struggle with deficits,” she added.

So what works? According to Navarro, oil deregulation not only encourages market competition but also helps cushion the impact of global price spikes.

“In the deregulated downstream oil industry, reform durability—not reversal—is the welfare-maximizing path. Price spikes happen because the Philippines heavily imports at world prices. Deregulation avoids the costly defense of misaligned domestic prices while supporting firm entry and investment,” she said.

In June, the Department of Energy (DOE) clarified that the oil deregulation law is indisputable, as it only allows the suspension of tax increases and allows fuel prices to be determined by the market.

So far, the DOE has urged oil players to stagger their fuel price adjustments in response to domestic price spikes caused by geopolitical tensions, such as the Iran-Israel conflict last June.