AIM Policy Center Oil Conference Supports State Policy on Oil Pricing : Oil Prices Linked to Peso Devaluation and Rising

Oil Prices Linked to Peso Devaluation and Rising



On August 10, 2005, KAS Partner the Asian Institute of Management (AIM) Policy Center held the conference “The Global Oil Situation: What is it to the Philippines?” at the New World Renaissance Hotel. Recent events, including the rising price of oil being singled out as the cause of various local market commodity price increases, as well as global market oil prices reaching record highs over the past few months, made oil pricing a hot topic of discussion amongst public and private sectors.

In-depth analyses of forces and trends affecting oil prices as well as policy options were presented by Mr. Carlos Alindada, chairman of the Independent Review Committee on the Oil Deregulation Law, Hon. Peter Anthony A. Abaya, undersecretary of the Department of Energy and Dr. Peter Lee U, Dean of the University of Asia and the Pacific’s School of Economics.

The Independent Review Committee report given by Mr. Alindada on the Downstream Oil Industry Deregulation Act of 1998 explained that “the main cause of oil price increases was the effect of major peso devaluations and increases in the international price of oil especially since we import practically all our oil product requirements.”

The report also revealed that “there is no evidence of price cartels” citing that “when products are interchangeable, when market share is the ‘name of the game’, and competition is in full swing, we should not be surprised, but rather expect, that oil companies’ prices will seem to rise and fall at the same time.” Moreover, he said “frequent price increases resulted from government suasion in spreading major price increases over a longer period.” He mentioned that most oil companies in the

country are not making money and profitable rates of returns. “Since oil companies cannot keep up with price increases, they try to recover when there are price decreases.”

As Dr. Lee U pointed out, “there is no respite from high oil prices.” He said “high oil prices have been a result of real market factors as well as anxieties” naming “supply disruptions, real and feared” and “global growth and the insatiable appetite of China” as contributory factors.

Among the recommendations of Mr. Alindada was not to change the Policy of the State. He stressed that government subsidies on oil would be unfeasible. “Subsidizing oil prices does not work in an era of rising crude prices because it would entail government resources that it cannot afford.” He recommended that the “DOE should continue to foster safe and fair competition in the oil industry so that market forces can work for the benefit of consumers by checking price increases” and emphasized that “because we are practically 100% dependent on imported oil for our requirements, the DOE should accustom the public that we are now in a regime of high prices.”

Measures taken by the government to decrease the country’s dependence on imported oil were presented by Hon. Abaya. Among those he discussed were the use of compressed natural gas (CNG) on buses, the promotion of ethanol and coconut methyl ester (CME) as fuel additives, the establishment of a wind farm in northern Philippines, the use of coal liquefaction technology, and the use of oil from the Malampaya field as a strategic oil reserve.

Participants came from the business sector, government, academe, and the NGO community.

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New World Renaissance Hotel, Manila


Klaus Preschle

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Auslandsbüro Philippinen