BY:DONALD SEVILLA
WEIGHING OUR OPTIONS
In social media and in the mainstream news, we often hear our government officials expressing helplessness at the way prices of fuel have spiked at the pumps. They all point out that the culprit is deregulation which has kept their hands tied.
But come to think of it, many industry practices though
in use for a long time, don’t mean they are right. The “replacement pricing strategy” is engineered to protect the oil industry players more than the consumers. It’s about time we review the mechanisms in the Oil Deregulation Act and amend them, to come up with a balanced and equitable distribution of risks in doing business and not just have the poor consumer absorb them all.
This is similar to the pass-on charges which power companies conveniently add on to our electric billing.
Yet this was made possible because we allowed it to. It happens when business dictates government policy which most often is in their favor.
The current situation we are in did not just occur overnight. We privatized vital industries that left us at the mercy of big players whose primary aim is to earn more money for themselves and their investors, than protect the interest of our people. Business is never altruistic and we must always remember that.
It is worthy to note that the oil industry is also largely speculative. Any slight news of instability and rumors related to it, make the markets jittery.
When the airstrikes started, immediately thereafter the markets reacted and prices of oil skyrocketed at the prospect of the Strait of Hormuz being closed due to the conflict.
But when the US President announced that the war will end soon, the price per barrel of crude dropped too. This just goes to show the dynamics of a commodity that is heavily traded.
When a commodity is traded on a platform that acts much like the stock market does, we have gainers, losers and speculators rolled into one high stakes gamble.
In this trading game, brokers intently watch the commodity’s movement, price goes up and down affected by external factors even rumors. Future contracts are bought and sold which gives the commodity traded a speculative appeal.
Yet we are not traders. We are end -users who need oil for our refinery and finished products to run our cars and other machinery and equipment for industries.
Why get involved in the nitty-gritty of the trading business? Why tie our inventory pricing to the intricacies of the, trading game?
While we make purchases through the MOPS platform we do so on “spot purchases” meaning the price paid is already set at the time of purchase, not for a future contract or delivery.
Any fluctuations in price on the trading floor is not supposed to impact the price already paid for unless the dynamics adopted as policy is to allow repricing at inventory replacement cost which is disadvantageous to the public.
What this means is just another way to pass-on to consumers for us to absorb the price difference. We absorb the risks and as always, business profits.
This mechanism mostly goes one way in favor of the player for when oil prices drop the difference is reflected in trickles.
This is a classic ‘rockets and, feathers” effect. When prices go up, it skyrockets and when it falls, it floats down like feathers, slowly.
Isn”t it the reality in our gas stations? We pity the station owners, who are in the front lines and often bear the brunt of the public’s ire. These small players, in the, supply chain are also at the mercy of the big players.Yet if we are to examine things closely, prices going down do not even affect the baseline profits for the big guys.
Clearly then, the crisis unfolding should lead us to seek other possible sources of the product.The Strait of Hormuz only accounts for just 20% of the world’s oil supply transiting through it. So therefore, there are other alternative shipping routes as well as other sources of oil.
This would be an opportunity for our country to develop other suppliers to buy from. When one door closes, another window opens. We must then be, resourceful and not rely heavily on oil from the Middle, East.
For instance Brunei is an oil- rich neighbor. Don’t we have bilateral trade with them? Is our refinery directly buying oil only from the Gulf or aren’t our importers buying from somewhere else too?
The DOE has assured the public that we have adequate fuel supply for the country to last at least 50 days.
They have been saying we buy from refineries in Korea, Vietnam Malaysia and other nearby Asian countries. Malaysia has oil so does Cambodia and Indonesia.
Yet in other countries, government is not totally helpless. Korea has imposed a fuel cap at this time of crisis to mitigate the impact on its people.
These are crucial times for us and what is paramount is for government to protect our people not to be tied down by some legislation that protects business more than the public .
The supreme authority of government rests on the people it serves. As government is for the people, by the people and of the people, no legislation enacted, crafted by a few should undermine the public interest.
Our government is not helpless. All it takes is political will by our leaders not to” bend the law” but to abide by its constitutional mandate of protecting the, public interest.
Laws can be amended and at this time of national crisis, public interest should prevail. Leave the debates on oil deregulation in the halls of Congress but in the meantime government needs to act fast.
What good will it bring if our patient has died while we are yet contemplating what to do?