Junk EO 839, Please!
BY DUCKY PAREDES
Bankrupting the oil independents
‘Here is a clear case of a short-sighted policy meant to appease the gallery.’
THERE are only two prohibited acts under anti-trust safeguards provision of the oil price deregulation law. One is cartelization; the other is predatory pricing.
Cartelization is defined as "any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins."
Predatory pricing is defined as "selling or offering to sell any oil product at a price below the seller’s or offeror’s average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market..."
The Department of Energy-Department of Justice joint task force is charged with insuring oil companies do not resort to such unfair trading practices. This is the very same task force President Arroyo activated recently to look into alleged over-pricing of oil products.
The task force has yet to come up with any evidence of over-pricing, much less of concerted price-fixing and carving out of markets. So it is reasonable to assume cartelization is not a problem when it comes to the pricing of oil.
Also, there has so far been no evidence of predatory pricing. In fact, the prices of big players are on the average higher than those of emerging competitors. So on this second anti-trust safeguard, there appears to be no danger of the majors seeking to destroy new players.
The unavoidable conclusion is that the oil deregulation law of 1998 is working. Prices of gasoline and other oil products follow market forces. Allegations of "over-pricing" are duds populist politicians are firing.
Then out of the blue, President Arroyo last week ordered the rollback of prices to pre-October 16 levels and their freeze at such levels. The price freeze, we fear, will have the effect of a government-sanctioned predatory pricing. If the price freeze is not lifted soon enough, it will lead to the independent players biting the dust one after the other.
Petron, Shell and Chevron have pockets deep enough to sustain them through a price-freeze regime. They can sell at below cost, limited only by the extent of their foreign controlling owners’ commitment to stay in the Philippine market.
What about Unioil Petroleum, the current darling of the populists for its decision to cut prices? If global crude prices continue to hover at around $80 a barrel, we are pretty sure Unioil will go out of business in a month’s time. So will the other independents not much later.
Here is a clear case of a short-sighted policy meant to appease the gallery potentially wiping out the gains painfully won after a decade of market deregulation.