SPONSORSHIP REMARKS OF HON. FELICITO C. PAYUMO (LIBERAL PARTY, FIRST DISTRICT, BATAAN), CHAIR, HOUSE COMMITTEE ON ECONOMIC AFFAIRS, ON HOUSE BILL NO. 5264, 12 DECEMBER 1995

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Mr. Speaker:

I stand before you on behalf of the Committee on Economic Affairs which I chair, to call for the immediate passage of House Bill No. 5264, entitled: “An Act Deregulating the Downstream Oil Industry and For Other Purposes.”

Oil is a vital, strategic resource.  Its magnitude and importance is such that wide fluctuations in oil prices can adversely affect consumers and destabilize the general economy.  An adjustment in the price of oil serves as a signal in changing the price of other commodities.

This brings about the need to stabilize oil prices.

THE OIL PRICE STABILIZATION FUND

This, we did, by creating the Oil Price Stabilization Fund (OPSF) through Presidential Decree No. 1956 in 1984.   OPSF is mandated to reimburse oil companies for cost increases on crude oil and imported petroleum products that result from fluctuations in the exchange rate and/or the world market price of oil.

This is how OPSF works:  when the actual and landed cost of crude and petroleum products is higher than their benchmark price, oil companies are reimbursed through OPSF.   When the landed cost of crude and oil products are lower than the benchmark price, the difference is contributed by oil companies to OPSF.

Thus, while the international price of crude and foreign exchange rates continue to fluctuate, their domestic and pump prices are maintained as OPSF acts as a cushion or buffer fund.

Since then, subsequent laws expanded the scope and sources of OPSF.  To cite, Executive Order No. 137 and Republic Act Nos. 6952 and 7639.

THE NEED FOR DEREGULATION

Mr. Speaker, beyond the issue of oil pricing, there is a need to redirect the development of the oil industry in the larger context of national development.  Due to a steadily growing economy and an increasing demand for oil products, the industry needs to expand production and distribution.  Deregulation will greatly boost such expansion.

For a long time, we have insulated the domestic economy from the vagaries of the international market.  But as we integrate ourselves to the world economy by bringing down barriers to trade and competition, it is but proper to deregulate the oil industry, and we intend to do this through House Bill No. 5264 which we are sponsoring right now.

Through this measure, we propose to reduce the levels of government intervention, particularly in areas of supply, consumer choice, and price.

Oil deregulation is also mandated under Republic Act No. 7638.  It provides that: “at the end of four years from the effectivity of this Act, the Department [of Energy] shall, upon approval of the President, institute the programs and timetable of deregulation of appropriate energy projects and activities of the energy industry.”

We, in the Committee on Economic Affairs, together with the Committee on Energy and the Committee on Rural Development, are sponsoring House Bill No. 5264 as part of the country’s thrust towards overall economic liberalization.

House Bill No. 5264 provides for oil deregulation in two phases:  Phase I, which is the transition phase, and Phase II, which is the full deregulation phase.

Phase I liberalizes the importation and entry of new refineries, as well as provides for an automatic oil pricing mechanism.  The latter automatically adjusts the prices of petroleum products based on movements in the world market prices.

Phase II provides for full deregulation of the downstream oil industry not later than March 1997.  This includes lifting controls over oil company margins and phasing out OPSF.

From government’s perspective, oil deregulation moves the burden of price setting and monitoring, cuts the cost of regulation, and helps ease budgetary constraints.

From the industry’s perspective, oil deregulation levels the playing field, encourages investments, reduces red tape, bureaucracy, and graft and corruption, and ensures fair competition.  It allows new players to enter the oil industry, providing the impetus for competition and thus efficiency in the delivery of basic services.

And the consumers—you and I, our constituents, people we meet everyday—will be the ultimate beneficiaries of oil deregulation.  Aside from widening their choice of petroleum products, deregulation ensures their continuous supply, high quality, and adequate prices.

The general trend is toward economic liberalization. Industries are opening up and market forces are taking control everywhere, to the benefit of the public and the general economy.  We need to deregulate our oil industry in order to keep up with this trend.

Section 8 of House Bill No. 5264 likewise provides that, as far as practicable, full deregulation shall be timed when the prices of oil and petroleum products in the world market are declining, and when the peso-dollar exchange rate is stable.

Eventually, our people will realize the wisdom behind the beneficial effects of deregulation.  Any drawback, at most, is limited to market psychology.

Indications point to the nation gaining more if we deregulate the oil industry.  The economy will be much healthier and consumers will gain more from deregulation.

For the above reasons, I strongly call for the immediate passage of House Bill No. 5264.

Thank you, Mr. Speaker.

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