Fuel price cap may spark rationing, says BSP exec

11/01/2009

A top Bangko Sentral ng Pilipinas (BSP) official yesterday joined calls for the government to review its decision to impose a cap on the prices of oil products, warning that it would only result in a shortage of the product as oil companies start to defer fuel importations that may lead to rationing.

BSP deputy Gov. Diwa Guinigundo said the government needed to be careful in the price cap policy under Executive Order (EO) 893, the details for the implementation of which were released Friday.

The Department of Energy (DoE) guideline for the EO required prices of all petroleum products in the Luzon region to revert to their level last Oct. 15 that would be maintained until the government lifts the state of calamity over the island.

In a circular, the DoE directed distributors of oil products and liquefied petroleum gas (LPG) to “retain or reduce the prices of their refined petroleum products” to the level “actually prevailing” as of 15 October 2009.”

Energy Secretary Angelo Reyes said fuel firms were also required to submit to the DoE a list of all their outlets in Luzon and actual prices of oil products last Oct. 15.

Those prices shall “remain effective until the EO is lifted or revoked by the President of the Philippines,” the DoE circular said. Implementation of the guidelines and EO will be coordinated with the Department of Justice (DoJ), Reyes said.

Reyes also directed the DoE-DoJ Task force to monitor the implementation of the EO, and to institute complaints against violators of the directive and the provisions of Republic Act 8479, the law deregulating the oil industry.

Oil companies earlier had warned the EO will trigger a shortage in oil products as oil companies are forced to sell their products at a loss with the rising cost of crude oil.

Guinigundo said the government-imposed control on oil prices may slow down inflation in the short term but it may pose bigger problems after, he said.

“When supply gets affected, prices will surge and will break out in the future,” Guinigundo said.

The Management Association of the Philippines (MAP) also expressed concern on the implementation of the EO.

It said the order was based on an oversimplified but misleading view of calamity situation brought about by the massive flooding from two

strong typhoons that successively hit the country early this month.

“While it is widely popular with the consuming public that is reeling from the effects of the global crisis and the recent typhoons, the order is based on an oversimplified but misleading view of the problem,” a MAP statement said.

The EO holds out the promise of lower prices but it does not properly inform the public of the dire consequences of arbitrary and sweeping price control, it added.

It said that from a legal point of view the constitutionally of the order is at best debatable.

The MAP said experiences has shown that price control distorts supply patterns and this order will not be an exception.

It added that the unavoidable response of a company that is forced to sell below cost is that it has to cut its business volume to minimize losses.

“As the entire chain inevitably gets scaled down, supply gradually disappears. Buyers then turn to informal sources and a black market emerges. In the end, the objective of keeping prices low is defeated. Restoring normalcy to the market is then a protracted and painful process,” it said.

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