Gov’t helpless on rising oil prices

Rising oil product prices are once again in the news and rocking the political underpinnings of governments everywhere. In the United States, President Obama may lose in the November election because gasoline prices are threatening to breach the $5/gallon level. If this happens during the heavy driving summer months, a new President may be elected simply out of protest.

Unfortunately, it doesn’t matter that the Americans are now less dependent on imported petroleum. The more widespread use of domestic natural gas and a decline in gasoline consumption are responsible for this bit of good news that’s invisible to the public. It is the price of fuel at retail that matters to people.

That our government seems helpless in the face of rising oil prices is nothing new. Most governments are in the same boat. The real problem of our government today is the impression that the Department of Energy has given up on doing anything more beyond giving a small subsidy to jeepney drivers.

I miss the days during the first energy crisis when we were in a worse situation than now. We were over 95 percent dependent on imported crude for our energy needs and we got caught in the political crossfire between the Arabs on one hand and the Americans, some Europeans and the Israelis on the other.

But credit the Marcos administration for refusing to just sit down and lament the country’s situation. It quickly did a number of things. It dissociated itself with the Western oil companies and appealed to Arab oil producers for government-to-government oil supply agreements. By presenting ourselves as just one other developing country not much different from the Arab oil producers, we got sympathy and access to the oil supplies we needed.

Of course we still had to pay the outrageously high international market price for oil but at least we were assured of uninterrupted supply. It was too much to expect Arab oil producers to give us discounts in the name of Third World brotherhood.

So we still had a problem. The high price of oil was eating a substantial part of our foreign exchange reserves. We knew we couldn’t sustain it in the long term. It was necessary to get the search for indigenous energy, like geothermal, into high gear as the long term measure.

In the short term, a massive program urging the public to conserve energy was launched. We wanted the people to be aware of the need to use energy more efficiently because every dollar we spent for every drop of imported oil was at the expense of other important needs. And we prepared for the worse case scenario – rationing in case oil supply was disrupted for whatever reason or if we can no longer afford to buy all the oil we needed or wanted to buy.

Now, it seems DOE thinks it is enough for them to point their finger to rising international oil prices. I don’t see them organizing the private sector with one massive campaign to explain what is going on and why we should all get together instead of fighting each other on this issue. They need to gener- ate public initiatives to mitigate the impact of rising oil prices.

For instance, people have to be made to understand the nature of international oil prices in terms as simple as possible.

So what’s the verdict of experts on oil prices? The latest predictions appear split between those who believe a slowdown in the global economy will lead to a sharp fall in the oil price - and those who believe the political uncertainty (like Iran) will cause further spikes - and that the long-term story on dwindling reserves will underpin the market.

Within the Philippine context, our consumers ought to be reminded that our consumption in the range of about 300,000 barrels a day does not give us any real leverage with international oil suppliers. Even if government takes over importation of our entire requirement, we cannot get away from paying market prices.

Junking oil deregulation and forcing oil companies to seek government approval before raising prices will only result in shutting us out of the oil market and causing serious supply

shortages. Every time oil prices move, and it will be constantly moving, our political stability also comes under threat.

While it is possible that local oil companies are taking advantage of the situation by raising prices more than they should, only a speedy review of their financial records will tell us the real score. We should develop a format for doing this regularly and quickly.

Gov’t response

Having established the international context of oil prices, government must now be seen as doing something to alleviate the impact of a harsh reality. The good news is, we have succeeded in weaning power generation from oil. But we are rather vulnerable in mass transportation. This should be the focus of mitigation efforts of government.

Giving discounts to diesel purchases of jeepney drivers is a futile short term measure with no real impact on the largest number of people. Dropping VAT on oil products reduces government’s resources to respond more effectively to this and other problems. Pricing diesel significantly lower than gasoline creates a price distortion that encourages smuggling of diesel out of the country. It also allows extremely rich owners of diesel powered Benzes, BMWS and Audis to benefit at the expense of the middle class Toyota Vios owner.

Improving mass transit that depends on electricity is a way of making our mass transport sector less dependent on imported oil. This is why it is important for DOTC to be seen as being on the ball with its projects. There are many things Mar Roxas must move quickly on: the rehabilitation of MRT; extension of the two LRTS; action of the MRT7 BOT proposal, among others.

Cutting travel time and thus, the number of idling engines, through effective traffic management is a dream worth pursuing. Aside from strict implementation of traffic rules, there are also engineering solutions to consider, like the two competing BOT proposals to connect NLEX with SLEX.

Mar Roxas was quoted in news reports saying that we could have both proposals instead of just one or the other. That’s fine provided the viability of having both projects is not sacrificed so as to endanger chances of proponents in getting bank financing. Since both proposals fall under DOTC and DPWH, perhaps P-noy could get his two secretaries together to expeditiously act on these infra projects that also mitigate the impact of rising oil prices.

The other thing government can do is encourage use of public vehicles not powered by petroleum fuels. The battery powered vehicles that were launched with much hoopla in Makati are probably viable for short distances within a commercial district. For longer distances, the use of compressed natural gas is probably the answer. Unfortunately, our CNG experiment died before it was fully launched but after investments had already been made by bus operators.

A pilot project, involving 200 units of CNG dedicated buses, was supposed to not only reduce our transport sector’s dependence on the more expensive diesel, it was also supposed to clean up our air. The project involving the DOE and Pilipinas Shell was supposed to have been launched some six years ago… June 12, 2006. The idea was to use our own Malampaya Gas and even if we imported natural gas, that was, at least at that time before Fukushima, cheaper to do than diesel.

Some bus operators brought in several units of imported and dedicated CNG buses but Pilipinas Shell simply failed to put up the filling stations it was supposed to operate. Shell had technical problems it couldn’t solve through the years which left the bus operators hanging. Government seemed helpless in managing the project too.

Technical experts of DOE eventually identified the main technical problems but Shell was reluctant to upgrade its facility. DOE then proposed to tap PNOC-EC instead. But apparently, PNOC-EC didn’t get the necessary mandate from the government. According to the operators, the DOE through USEC Jay Layug has set a target date for PNOC EC to build the facilities by October. But, the operators lament, no visible development is apparent.

The operators are pleading with government to show through clear affirmative acts that it would pursue the use of CNG for public transport. Or at least tell these operators what the score is. It isn’t fair to keep them hanging after all these years and after some of them have actually made investments based on government encouragement.

Contract

Lito Balquiedra sent this one.

Wife: “What are you doing?”

Husband: “Nothing.”

Wife: “Nothing...? You’ve been reading our marriage contract for an hour.”

Husband: “I was looking for the expiration date.”