SPONSORSHIP REMARKS OF HON.  DANTE O.  TIÑGA (LAKAS, TAGUIG-PATEROS), CHAIR, COMMITTEE ON ENERGY, HOUSE OF REPRESENTATIVES, ON HOUSE BILL NO. 5264, 12 DECEMBER 1995

 

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Mr. Speaker:

 

When world crude prices increased rapidly to unprecedented heights in 1973, concern for energy began to take center stage in most countries.  Particularly affected were the less-developed, imported energy-dependent countries like the Philippines.

 

Throughout the period following the oil crisis, the energy policy of the Philippines has focused on developing indigenous energy resources and promoting more efficient energy use.   Indigenous energy resource development involved heavy government participation in developing oil, geothermal, coal, and hydro resources.

 

Energy demand management initially focused on direct intervention, with fuel allocation and rationing schemes used during periods of tight supply.   However, energy pricing was soon recognized as a more permanent and effective policy tool for managing demand.

 

In the early ‘70s, the Oil Industry Commission (OIC) was created under Republic Act No. 6173 was given the task of regulating the production and marketing of petroleum products.    In 1977, the OIC was replaced by the Board of Energy by virtue of Presidential Decree No. 1206 and was further amended by Presidential Decree No. 1573, which expanded its powers and functions to cover power rates of electric utilities.

 

The Board of Energy was replaced in 1987 by the Energy Regulatory Board, or ERB, under Executive Order No. 172.   Among the powers of the ERB are:

 

(1)      Fixing and regulating the prices of petroleum products;

 

(2)      Fixing and regulating the rate schedule of prices of piped gas to be charged by duly franchised gas companies which distribute gas by means of the underground pipe system;

 

(3)      Fixing and regulating rates of pipeline concessionaires under Republic Act No. 387, as amended, otherwise known as the Petroleum Act of 1949, as amended by Presidential Decree No. 1700;

 

(4)      Fixing and/or prescribing rates or charges pertaining to the hauling of petroleum products formerly exercised by the Land Transportation Commission;

 

(5)      Fixing and regulating the rates or charges pertinent to shipping or transporting of petroleum products; and

 

(6)      Adjusting the levels of prices of petroleum products and the payment to the Oil Price Stabilization Fund, or OPSF, created under P.D. 1956 by persons and entities engaged in the petroleum industry.

 

In 1992, with the enactment of Republic Act No. 7638 in the last Congress, which is otherwise known as the Department of Energy Law, the non-price regulatory power of ERB was transferred to the Department of Energy, more specifically, its Energy Industry Administration Bureau.  Among the functions transferred are:

 

(1)      Regulating the business of importing, exporting, reexporting, shipping, transporting, processing, refining, marketing and distributing energy resources; and

 

(2)      Regulating the capacities of new refineries or additional capacities of existing refineries and licensed refineries that may be organized after the issuance of Executive Order No. 172, under such terms and conditions as are consistent with the national interest.

 

The oil industry has been regulated for over 20 years and that has resulted in difficulties in attracting the capital necessary to fuel the demands of the resurging economy.   Moreover, the present regulations on petroleum pricing are heavily influenced by strong political pressures which often result to large and untimely adjustments.

 

The OPSF, however, often fails to serve its purpose and contributes to a higher budgetary deficit instead, a situation which spawns double-digit inflation and high interest rates.

 

The existing price regulations also make the oil companies as public utilities imposing “allowable recoveries” on their investments which encourages inefficiencies within the industry.   Regulations on the non-price aspects, on the other hand, restrict the free entry and free trade of refined oil products in the market resulting to artificially-priced products and petroleum supply-demand imbalances.

 

Thus, a more liberal environment is needed by eliminating entry barriers to the industry, both on the trade and investment aspects, eliminating restrictions on operating margins and allowing market forces to determine petroleum prices.

 

Under Section 5 (e) of Republic Act No. 7638, Mr. Speaker, the government considers the deregulation of the oil industry as one of the urgent economic reform programs.   This policy reform is based on the belief that a truly competitive market can better achieve a social policy objective of fair prices and margins and stable sufficient supply of clean and high quality petroleum products.

 

It is against this backdrop, Mr. Speaker, that a number of eminent Members of this House introduced separate bills all seeking to deregulate the downstream oil industry.   House Bill No. 210, introduced by Congressman Punzalan, Jr., led the pack.   Then there is House Bill No. 217, filed by Congressman Golez; House Bill 996 authored by Congressman Herminio Aquino; and House Bill No. 4067 authored by this Representation.

 

After extensive public hearings on all these bills, the Committees on Energy and Economic Affairs—the latter chaired by Congressman Payumo—came out with a consolidated committee bill.  That is the bill at hand which is House Bill No. 5264.

 

Under the bill at hand, House Bill No. 5264, a policy framework and an action plan for the deregulation of the downstream oil industry are proposed to be established.   Oil deregulation will be implemented in two phases to enable a smooth transition from regulation to deregulation.   Phase I which is the transition phase, will involve partial deregulation and it will commence immediately upon the effectivity of the measure.   Phase II, on the other hand, is the full deregulation phase and it will be implemented not later than March 1987.   As the term connotes, it will be characterized by the free interaction of market forces in the allocation and price setting of petroleum products.

 

The main features of the bill at hand are:

 

(1)      It allows any person or entity to import or purchase any quantity of crude oil and petroleum products from any foreign or domestic source, lease or own and operate refineries and other downstream oil facilities and market such crude oil and petroleum products.

 

However, such person or entity will have to register with or notify the Department of Energy for monitoring purposes but the said step shall not exempt the registrant from securing certificates of quality, health and safety and environmental clearance from the proper governmental agencies.

 

All oil importations, however, shall be in accordance with the Basel Convention.

 

(2)      It enables the domestic price of petroleum products to approximate and promptly reflect the price of oil in the international market by establishing an automatic pricing mechanism;

 

(3)      It also provides for the implementation of full deregulation of the downstream oil industry not later than March 1987, but at a time when the prices of crude and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar are stable.

 

BENEFITS OF DEREGULATION

 

In general, Mr. Speaker, deregulation can be more effectively assessed in terms of long-term aggregate benefits to the economy.    For quite some time now, the deregulation revolution has been going on in the world.   The most dramatic manifestations of the revolution have happened not in the traditional public utilities but in such structurally competitive industries as the transportation, oil and natural gas industries.

 

The natural effects of the deregulation revolution are positive and far-reaching.   First, it sets off an explosion in competition.   Second, with the free interplay of market forces, individual price rates have become more closely aligned with marginal costs.   Third, competition is offering consumers a greatly increased variety of price and quality options.   Fourth, the deregulated industries have greatly improved the efficiencies of their operations.

 

With the deregulation experience in developed countries as the backdrop and the liberalization of the local telephone industry as an indicator, the deregulation of the oil industry is expected to result in sufficient and reliable supply on one hand, and stable and fair prices, on the other.  In particular, consumers will benefit in the following ways:

 

(1)      Petroleum prices and margins responding to market demand will improve supply and production, and promote efficiency in energy consumption.

 

(2)      Market-based prices and margins encouraging the entry of more players in the industry will enhance the pressure of competition which in turn will push the prices down and precipitate greater efficiency from the oil companies; and

 

(3)      Market-driven competition requiring faster development of new products and services will increase the range of consumer choices.

 

The government, on the other hand, will no longer carry the political burden associated in petroleum price setting.   The foreign investment climate is expected to improve not only in the oil industry, but in other industries as well, thereby providing an avenue for world competitiveness.

 

In New Zealand, for example, Mr. Speaker the rise in competition engendered by deregulation has led to a substantial increase in investment in the sector.   Key areas for investment have been technological innovations in retailing facilities and customer services, manpower development and training, and the upgrading of undercapitalized sites.   Spin-off effects have been felt in other sectors of the economy as a result of the retail sector’s general improvement.

 

Efficiency has become apparent in the petroleum allocation and production areas.   The wholesaler relationship of retail outlets has resulted in efficiencies in stock management and distribution.   Competition among wholesalers has increased the access to sites and improved the utilization of land resources.

 

Mr. Speaker, it must be considered that deregulation is a radical cure.   As such, it will produce worrisome pains and engender difficulties in the short term.   With all these in mind, the bill at hand was crafted to contain safety valves.   For one, there is a transition phase during which the OPSF mechanism will be continued to a limited extent.   And for another, there is sufficient flexibility in the timing of the implementation of full deregulation.

 

It is clear, however, that the verdict of the great majority of world-acclaimed economists is that deregulation has been a success.  They are also agreed that whenever it seems likely to be effective even very imperfect competition is preferable to regulation.   Thus, this body should muster enough will and courage to blaze a new trail—the deregulation of the oil industry in this jurisdiction.

 

Mr. Speaker, global competition is the rule of the day with the commitments being made by the Philippines in various world trade agreements like the APEC, the AFTA, and the World Trade Organization new agreement.

 

So this Chamber should take the concomitant steps in liberalizing the various steps of the economy.   We should not protect the inefficiencies of our industries.   We should be more competitive both in attracting investments and promoting trade.

 

I, therefore, respectfully urge the passage of his measure.

 

Thank you, Mr. Speaker.

 

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