ON Monday, Energy Secretary Sharon Garin announced that the Department of Energy (DOE) had formally submitted proposed amendments to Republic Act (RA) 8479, or the Downstream Oil Industry Deregulation Act of 1998, saying that the recommendations were “practical measures that will strengthen our energy security, improve supply resilience and better protect the Filipino people from future supply disruptions.” This was, of course, in response to the recent energy crisis caused by the United States-Israel war against Iran, which badly disrupted fuel supplies from the Persian Gulf and caused prices to soar worldwide.
That situation has improved, although another flare-up of Iranian attacks against shipping in the Strait of Hormuz and retaliatory air strikes against targets in Iran by the US on Wednesday were a stark reminder that the temporary “peace” agreed last month is still extremely tenuous. Thus, there is a sense of urgency in taking measures to protect the country from another energy shock. In that respect, the DOE’s move to propose some kind of security measures relatively quickly is noteworthy. However, what it has proposed so far is decidedly less than impressive, and does not really seem to address the most significant negative effects the Philippines has experienced, and is likely to experience again.
The DOE reportedly forwarded three proposed amendments to RA 8479 to the House of Representatives and the Senate Committee on Energy, but Garin only shared two of them with the media in a press conference on Monday. The first was the proposed establishment of a national fuel reserve of 60 days’ supply, and the second was a proposal to increase the required inventory reserve of oil companies from 15 to 30 days.
The reported third proposed amendment was not disclosed, but Garin made a point of saying that the DOE was not proposing to establish a system for price controls. “This is quite a very sensitive issue, and the fact that it’s oil deregulation, the concept was to leave it to market competition so that the theory is that prices would fall when there’s competition among oil companies,” Garin was quoted as saying.
Under the state of “national energy emergency” declared by President Ferdinand Marcos Jr. with Executive Order 110 in March, the DOE has the authority to manage allowable fuel price adjustments, which it has done through enjoining the major fuel suppliers to implement major increases in installment fashion over a period of a couple of weeks. Prior to the enactment of the Oil Deregulation Law, the government could impose a ceiling on fuel prices, subsidizing the difference through the Oil Stabilization Fund.
The most severe part of the war-induced crisis took place in March and April, which was not so long ago that the experience could have faded from the DOE’s memory. It most certainly has not faded from the memory of fuel consumers, who faced a price rather than a supply crisis during that time. While there were a few brief and isolated incidents of stations running out of fuel supplies, overall the country’s supply buffer has stayed above 30 days. The proposals presented by the DOE would extend that buffer, but they do not actually address the most serious problem experienced by the country. In fact, Garin’s statement indicated that the DOE pointedly chose not to propose a solution to that problem of unmanageably high prices.
The reasoning for that provided by Garin, that “competition among oil companies would lower prices,” is completely facetious, and one would think that the nation’s chief energy policymaker would understand that simple bit of economics. Oil demand is perhaps the most inelastic thing there is (meaning, demand does not change as prices rise or fall), therefore, prices are not at all competition-driven. There may be some slight variations from one supplier to another, depending on their sourcing, but there are a limited number of sources in the first place, which prevents any oil company from significantly undercutting its competitors. There is also a widespread assumption — which is not without some basis — that oil suppliers are collusive, and only “compete” within agreed limits.
It is possible that the rumored third proposal does address fuel price spikes, despite Garin’s statement, and of course, Congress will ultimately determine what, if any, amendments to the existing Oil Deregulation Law will be made. But as things now stand, the DOE’s proposals leave much to be desired, and do not inspire confidence that the next serious energy crisis will be any less disruptive.
