Oil Deregulation Law comes in for scrutiny after fuel prices spike due to Iran crisis

By Sheldeen Joy Talavera, Reporter

THE 28-year-old law that liberalized the downstream oil industry needs to be looked at again to strengthen energy security and protect consumers, an analyst said.

“Revisiting the Oil Deregulation Law is necessary to address current vulnerabilities while maintaining a competitive and investment-friendly oil market,” Jose M. Layug, Jr., executive board member of the Philippine Energy Research & Policy Institute, said in a statement.

“The priority is to strengthen transparency, improve crisis response, and protect consumers without undermining the gains of market liberalization,” he added.

Signed in 1998, Republic Act No. 8479, or the Downstream Oil Industry Deregulation Act, authorizes pump price adjustments without need for government approval in response to global oil price movements.

Moves to revise or amend the law have been floated in response to the attacks on Iran, which threatens to choke off supply from the Middle East, much of which needs to transit the Strait of Hormuz near the site of some of the fighting.

Philippine energy needs are primarily serviced by Middle East crude and fuel products derived from it.

On March 10, fuel retailers began a gradual increase in pump prices as the authorities worked to temper any one-time price hikes that could total up to P38.50 per liter if imposed all at once.

Gasoline prices were set to increase by P7 to P13 per liter, diesel prices by P17.50 to P24.25  and kerosene by P32 to P38.50 in the latest round of adjustments.

The Department of Energy (DoE) has ruled out a cap on fuel prices, which it said would violate the deregulation law.

“If there’s a change (in the law…) we will be able to scrutinize how prices are computed and whether we should limit (movements) or (resort to) uniform pricing,” Energy Secretary Sharon S. Garin said at a recent briefing.

Various measures are being considered in Congress focusing on making pricing schemes more transparent.

Mr. Layug said that while key objectives of the law have been achieved, such as liberalizing the industry, opening the market to independent entrants, and supporting private investment in fuel infrastructure, the Philippines remains highly exposed to international oil price fluctuations and supply disruptions.

He said domestic fuel prices largely reflect international market movements and that oil company profits “were not consistently excessive.”

“But as long as we continue to rely on imported fuels, this dilemma will never end until the Philippines becomes energy independent,” he said.

IBON Foundation Executive Director Jose Enrique A. Africa said that revisiting the law is “immensely justified,” saying the key context remains the Philippines’ overdependence on imported energy.

“The very premise of deregulation of such a strategic commodity with such far-reaching impact has to be overturned, the law repealed, and a new law regulating the oil industry enacted,” he told BusinessWorld.

Mr. Africa said the government needs price stabilization mechanisms, including “regulated pricing bands, authority to smooth pricing, a petroleum price stabilization fund learning from past errors, and a real strategic petroleum reserve beyond firm-level inventories.”

A strong state-owned oil firm would be effective in regulating the industry and insulating it from adverse market price movements, he said.

“The crisis today can be an important push to fixing the 30-year error of oil industry deregulation,” he said.

Noel M. Baga, co-convenor of the Center for Energy Research and Policy think tank, said any action could start with a State of Calamity declaration, under which the government can impose price caps.

He said the authority to cap is governed by the Disaster Risk Reduction and Management Act and the Price Act.

Over the long term, Mr. Baga said the Philippine National Oil Co. (PNOC) should establish a strategic petroleum reserve, a stockpile from which consumers can draw from at subsidized prices during crises.

“A strengthened PNOC should serve as a secure, reliable oil source for government agencies and the public alike,” he said.