Friday, July 18, 2008

The Oil Price Problem

First off, I'm not in any way connected to any petroleum company. I do not work for one, nor am I a fan of one. I am not related (by direct line, or by 4th degree of consanguinity or affinity) to any person working for one. The only association that I can think of between me and oil, is the one being taken off my face by an oil control strip. That being cleared up, let's look at the problem objectively.

We are faced with the fuel problem. What do we do?

First option: repeal the Oil Deregulation law. But in my opinion, Oil deregulation is out of the question. At a time when other countries are deregulating their oil industry (because of the unreasonable burden to the public coffers), many camps in the Philippines are clamoring for regulating our oil industry. That is simply unwise. We deregulated way back in the 90s because of mounting costs to subsidize the people's fuel needs. A regulated oil industry is akin to a trojan horse - it may look like a gift, but what will happen to us if the government revenues are not enough to meet our gas-guzzling needs, among other things? It will surely haunt us in case the country's fiscal health collapses.

Second: the non-imposition of VAT in petroleum products is a more plausible solution. If the government decides to do so, our P60++ gas price will be reduced by P6 or so. It is a big help. But I don' think the government is willing to do so. When VAT was imposed on oil products, the gas price was only P20-30 then. But since then, the world prices has quadrupled, an our local oil prices was doubled. Which means that the government has inadvertently doubled its revenue from oil without any effort on its part. And because of the inelastic nature of oil products, the people have no choice but to buy it. So the government will be really reluctant to let go of this cash cow.

The third option is to appeal to the oil companies' hearts. This is far-fetched, since corporations are heartless entities (I mean that literally, not figuratively). But at the very least, we can appeal to them to price their products according to the market movement. Which means that they will not hastily increase the prices when there is a scare in the world market, and they will not slowly decrease their prices when the world market prices have decreased. In other words, let's just hope to high heavens that they will not take advantage of the situation by trying to milk more money from the people just so they can increase the dividends of their stockholders. Sounds just fair, right? But this is an appeal that would probably be left unheeded.

Fourth option: ride a bicycle on the way to work.

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