Another mulls legal options on Palace order

MANILA - Only 2 oil firms on Sunday have so far announced it will comply with the directive of President Arroyo to revert and then freeze pump prices to October 15 levels due to the state of emergency in Luzon while another said it is still considering its legal options.

Independent oil players Unioil Petroleum Philippines Inc. and Flying V said they will reduce pump prices of petroleum products by P2 per liter for diesel and P1.25 per liter for gasoline.

Unioil said it will roll back prices effective 12:01 a.m. Monday. Flying V however has yet to announce the schedule of its price reductions.

Revert to October 15 levels

President Arroyo signed Executive Order (EO) 839 Friday directing oil companies to “retain the level of the retail price of petroleum products prevailing on October 15, 2009, which was one week after the last landfall of typhoon ‘Pepeng.’”

The price freeze was made, according to Arroyo’s EO: “to respond immediately to the clamor of the Filipino people to prevent unreasonable increase in the prices of petroleum products during a state of calamity.”

Presidential spokesperson for economic affairs Gary Olivar, in a text message Sunday, said, Malacañang “wants to mitigate the hardships caused by the recent calamities by temporarily freezing oil prices, the same as other basic commodities under price ceilings in force.”

Since the declaration of the state of calamity last month, government has imposed price controls on basic goods but petroleum products were not included. Despite “Pepeng” and “Ondoy's” devastation, several oil companies raised pump prices citing increasing international prices but also prompting public protests and criticisms.

The order has already been made effective after it was published in a broadsheet Saturday.

Duration of emergency declaration in Luzon

The price freeze is effective “for the duration of the state of emergency in the entire Luzon area.”

The presidential directive said it was based on Section 14(e) of Republic Act 8479 or the Oil Deregulation Act.

The cited provision in RA 8479 only states: “In times of national emergency, when the public interest so requires, the DOE [Department of Energy] may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any person or entity engaged in the [Oil] Industry.”

Arroyo’s order also directed a task force of the justice department and DOE to monitor the implementation of or the price freeze and to institute complaints against violators.

To comply with EO 839, oil firms will have to revert to prices before October 19. Most oil firms raised prices by P2.00 per liter for diesel, P0.85 per liter for regular, P1.50 per liter for kerosene and P1.25-1.50 per liter for gasoline

Legal options mulled

Another independent oil player however balked at the Palace directive and said it is considering its legal options.

“Given the almost P2.00 per liter additional cost in MOPS [Mean of Platts Singapore] which must be reflected this week on top of last week's increase, it's almost impossible for any oil company to comply with [the] 15 October price level,” said Fernando Martinez, Eastern Petroleum Corporation chief executive,

Martinez said that it would be interesting to see how any oil company can sustain the price levels at October 15. He cited that this could be done only if there was a downward movement in international oil prices this coming week and at a level of $12 per barrel.

“We will study our legal options in consultation with the rest of the industry players,” said Martinez.

Eastern Petroleum, as well as any of the so-called Big 3, Petron Corp. Pilipinas Shell Petroleum Corp. and Chevron Philippines (formerly Caltex), has yet to announce compliance with the presidential order and set any rollback in the prices of their respective oil products.

‘Manage oil prices’

Before oil companies increased prices October 19, Presidential son and House committee on energy chairman Juan Miguel "Mikey" Arroyo had sought to "manage" oil prices in calamity-stricken areas.

Pampanga 2nd district Rep. Arroyo made the proposal during the October 15 Legislative and Executive Development Advisory Council (LEDAC) meeting.

"Of course I stated that (oil price control) during times of crisis. Though we are in a deregulated industry, perhaps there would be a need to create mechanisms to prevent distributors, oil companies from exploiting the situation, kasi they might take advantage of it by bringing up the price," he said.

Rep. Arroyo had said they will still discuss possible mechanisms how this can be done citing possible consultations to be made with the oil players and the Department of Trade and Industry.

The Pampanga 2nd district representative warned oil players who are taking advantage of the situation. "The mere mention of the possibility of a mechanism to control oil price in calamity is already a warning to unscrupulous businessmen not to exploit the situation. Yun ang importante."

Supply problem warned

Energy Sec. Angelo Reyes had however immediately warned then that setting a price ceiling on petroleum products would do more harm to the consumers.

"The problem is when you impose a price ceiling, the cure might be worse than the disease," he said last October 15. Reyes was then reacting to a directive by President Arroyo for the DOE to open the books of oil companies to see to it that their prices are at reasonable levels.

He had said controlling oil prices may affect the supply of petroleum products.

"We will get problems of threatened supply availability, if we impose a price ceiling. We must remember that this is essentially an imported commodity and the moment international price is higher than the ceiling, then who will import unless it is subsidized? So if it has to be subsidized, then the Department of Finance (DOF), will have to answer whether in fact they can subsidize it," he said.

He pointed out that the proposal to include petroleum products in the price ceiling would be harmful not only to the consumers but also to the whole industry.

"You're trying to address a pricing problem but you end up a supply problem. And that will be more disastrous. That was what I was saying from the start," the Arroyo cabinet member said.

Reyes had also said it is against the Oil Deregulation Law to meddle in oil prices.

"We cannot have or we cannot impose a price ceiling on petroleum products as it is against the law," he said.

He said under the law, the DOE's power is confined in monitoring of oil price movements which in a way could also be one form of "control".

He said, "We are here to protect the public and to ensure that there is no cartelization, no predatory pricing, and to make sure that prices remain reasonable - and that we will do."

Reflective of international prices

The energy department had also defended the October 19 price hikes by oil companies as it said the increases were reflective of oil prices in the world market.

Reyes had said computations by the DOE’s Oil Industry Management Bureau showed that diesel prices should have gone up by P1.97 per liter, based on world oil prices from October 12 to 16 which is almost similar to the P2.00 per liter price hikes made by oil companies.

DOE data also showed that gasoline prices should have gone up by P1.19 per liter which is very near the at least P1.25 per liter increases implemented by oil companies.

Oil companies reportedly normally round off their price adjustments.

Petron Corp. had also warned last week that local prices may go up again in the coming weeks if world oil prices continue their uptrend.

Rising international prices

International oil prices meanwhile have already hit the $82 dollar mark last Wednesday, the highest level since October 14, 2008.

Last Friday, prices for New York's main contract, light sweet crude for delivery in December, shed 69 cents to end at 80.50 dollars per barrel. London's Brent North Sea crude for December delivery dropped 59 cents to 78.92 dollars a barrel.

An analyst said international oil prices could "flirt with the $90 dollar before the end of the year" as "there’s still further weakness to be seen in the dollar."

With prices over $80 dollars at present amid a fragile global economic recovery, OPEC producers may have to reassess the market situation, some analysts said. With reports from Alvin Elchico, Gretchen Fullido, ABS-CBN News and from Agence France Presse