Oil price review committee, deodorant of oil cartel-Aquino govt collusion?

Progressive groups are criticizing the Independent Oil Price Review Committee for limiting itself to ‘surface data’ and refusing to delve deep into the supply contracts and inventories of oil companies; for starting from the assumption that the Oil Deregulation Law is for the people’s benefit; and for relying on data ‘voluntarily supplied’ by oil companies.


Sidebar:Probe on findings of Independent Oil Price Review Committee urged

MANILA – The Independent Oil Price Review Committee’s report absolving the oil companies of overpricing immediately drew condemnation from various groups. The women’s group Gabriela trooped to the Department of Energy a day after the report’s release to denounce its “highfalutin exoneration” of the oil companies.

“He completely misses the point,” Joms Salvador, deputy secretary general of Gabriela, said of Benjamin Diokno, chairman of the review committee. After releasing the report, Diokno has been “piously” explaining to the media how they arrived at their findings and their basis for it. The committee he leads had all but sneered at the charges of oil overpricing, which, they claimed, used questionable data and computations.

But in fact, it is the review committee’s methodology and data that are suspect, according to Ibon Foundation, a non-government think tank. The labor center Kilusang Mayo Uno (KMU) described the review committee’s report as just “a cover-up of the oil companies’ crimes and the Aquino government’s collusion with the oil companies.”

“It is now spewing lies in order to defend the oil companies’ greed,” said Elmer “Bong” Labog, chairman of KMU.

Review committee’s narrowed vision, faulty conclusions

The Independent Oil Price Review Committee had promised a “scientific” report, but its probe had been anything but that, as various critics observed. The oil price review committee had limited the scope of its probe to already visible, surface ‘data.’ These include, according to Diokno himself, the behavior of local oil prices compared to price behavior at the spot market –Singapore spot market for this probe – and the behavior of oil prices in Thailand. (They observed nothing unreasonable there, they said, until Thailand started giving subsidies.) Diokno said the committee also probed into the oil companies’ return equity and predictive model. But they used data voluntarily given to them by the oil companies.

All these surface data, unfortunately, do not conjure the whole picture of how oil companies have been amassing profits, whether they reflect a diminishing profit margin or not. A real review needs to get to the bottom of the oil companies’ oil dealings. Progressive groups and independent think tanks have long asked the government to investigate, for example, the oil companies’ supply contracts and inventory data.

These data, said Ibon Foundation, would have revealed if the local values of oil imports and inventories were correct, and it would have determined, too, the exact profits of oil firms. According to Ibon, the amount paid by (local) oil firms for imports may be different from spot prices, especially if they are under long-term supply contracts.

Not only that, if the oil firms were engaged in intra-corporate practice of transfer pricing (in effect transfer profits to their mother firms abroad), it would naturally register lower profits for oil firms in the Philippines, Ibon Foundation said.

Transfer pricing occurs when divisions of a company transact with each other. In this case, the allegation is that the mother oil company, such as Royal Dutch Shell, might have been overcharging its local subsidiary, such as Shell Philippines, for the supply of oil products to understate the profits of the latter.

For these reasons, delving into the oil companies’ supply contracts and inventory data have long been recommended by peoples’ organizations to the government. But as this latest oil price review committee showed, those data were treated like sacred cows.

As if it was not enough to just limit the type of data it gathered and looked at, the review committee had also limited itself in terms of composition. It refused offers of progressive groups, for example, to field researchers to join the committee probe. The review committee had, thus, conducted their probe behind closed doors, without transparency, citing the oil companies’ need for data confidentiality.

From the beginning, the committee had also exhibited what critics described as its biases. It had explicitly stated, for example, its assumption about the goodness of the oil deregulation law, and its rejection of any likelihood it might consider recommending the return to government regulation or subsidy of the oil industry.

Ibon questioned the review committee’s recommendation on the continuation of the oil deregulation law. The review committee’s report appears headed to a collision course in Congress, against the progressive partylist groups’ pending bills and resolutions calling for either the scrapping or thorough review of the Oil Deregulation Law.

“It is erroneous to assume that under deregulation, market forces fully come into play and make oil prices competitive, with the consuming public benefiting from fair prices, Ibon said in a statement.

The group explained that the global oil industry is under the monopoly of transnational corporations (TNCs) like Royal Dutch Shell, BP, Exxon Mobil, Chevron Texaco, etc. through their effective control over oil reserves, technology, capital, infrastructure, and marketing.

“When one firm has control over every stage of production and distribution, it does not need a spot market and it can also rig the price of its commodity to widen its profit margin,” Ibon said.

It is not clear if the committee has fully examined the dynamics of profiting in the oil industry, the research group Ibon said.

According to IBON, oil giants can afford to have a lower profit margin or even appear to operate on a loss because their mother units have already earned superprofits even before their products reach the local pump stations. As such, promoting continued deregulation of the oil industry means allowing oil giants to continue making these profits and maintain their position in the industry at the expense of the public, the research group said.

Aside from deliberately narrowing the reviewer’s field of vision, obscuring in the process the bigger bones of contention, the oil price review committee has previously told critics during “public consultations” that oil companies should in fact be entitled to profit from their operations. The only thing to debate as far as they are concerned is how much rate of return – as reported by these oil companies – is allowable.

In an interview on an AM radio yesterday, Diokno also said that “we cannot interfere with the pricing formula of oil companies.”

Because of their methodology and chosen data, the oil price review committee has “found” that the oil companies’ return on equity had diminished over the years. Diokno claims that from 33-percent before the oil deregulation law, it went down to 13-percent after the oil deregulation law. The poor big oil companies, in Diokno’s view, are even being left behind in rates of return on equity by telecom and mining companies.

Given the review committee’s worldview and composition, its failure at finding evidences of overpricing, its eventual exoneration of the oil companies, and its praise for the oil deregulation law, are all ‘just as expected,” the KMU said.

Petron, Shell and Caltex ranked Top 1, Top 2 and Top 5 respectively among corporations with the biggest profits in 2010. Their parent companies or chief suppliers, meanwhile, are consistently top-ranking global companies.

Disappointing but not surprising

“The IOPRC is just a deodorizing mechanism to justify oil overpricing and neutralize the righteous anger of the people,” Salvador of Gabriela said.

Already burdened by a “bad economy,” the Filipino women had “expected no good policies from Diokno and his patron, President Aquino,” said Salvador. Rising prices are making life harder for us, she added, but the Aquino government is not interested in solving that.

“We are confident that the IOPRC’s findings will not stand the test of genuine public scrutiny. The oil monopoly’s greed has been thoroughly exposed by researches both in the country and abroad,” Labog of KMU said.

The labor center called on the public to continue to hold protests against the overpricing of oil companies and the Aquino government’s collusion with the Big 3 amid recent spikes in the prices of petroleum products.

As various transport groups led by Piston get ready for a nationwide protest, Labog called “on the workers and public: Let us show the IOPRC, the Aquino government, and the Big 3 oil companies that we will not be duped by their lies. Let us continue to protest rising oil prices and prepare for a People’s Protest in the coming weeks.” (https://www.bulatlat.org)

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6 Comments - Write a Comment

  1. We are all barking at the wrong tree. The government or the appointed guardians are not there for the benefit of the people. They are there to protect their own interests. The solution is for a people initiative to bring free energy to the market place. By free energy, I mean energy that can be had using fuel that is so cheap that it might as well be free. In other words, the technology to solve the energy problem is available or about to become available. That’s one thing but bringing the technologies forward is another thing. Those interested in the subject may google “free energy”, Peswiki, or Free Energy Movement, etc. You will find that one day sooner rather than later, fossil fuels like oil and coal as well as nuclear will be a thing of the past, assuming the people in the free energy movement will not succumb to pressures from governments and other influential parties.

    Any comment or rejoinder to above statements is welcome. My email address is rodjargo@gmail.com.

  2. Google the “$2.5 Trillion Oil Scam – slideshare” and google the “Global Oil Scam.” The Philippines is a victim of this scam. Purchase electric cars and solar panels.

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