This is a re-posted opinion piece.
Verbiage could be defined as garbage words. Well, too many of those are being spewed forth on the issue of the rising prices of oil products.
Regardless of how much of such verbiage is expended on this by pompous officials and irate users, however, the sad reality is that our government has little control over the price levels of gasoline or diesel or LPG or avgas. It is useless, therefore, to demand the re-imposition of “regulation.” What is needed is further deregulation, this time of transport fares.
It is hard to see why no one sees that this is the only reasonable solution to the problem of rising fuel prices. What should be obvious is that the problem is not really that the prices of oil products have gone up, but that the spread between the revenues and the costs of those who use gasoline or diesel as inputs for the transport services they provide has shrunk.
Instead of castigating drivers and operators for their public protests against rising fuel prices and smugly smirking that those protests “fizzled out,” concerned officials should realize that the grievances are legitimate and that these drivers and operators are now earning significantly less.
Moreover, it is the fact that their profits — and their livelihoods — are being threatened by factors that they believe the government has control over that is making them demonstrate in the streets. As long as these drivers and operators of public transport vehicles are not persuaded that the government can “roll back” oil product prices if it wanted to, they will continue to vociferously demand that it do so.
To arrive at a solution to this problem, it is necessary first for everyone to realize that the government can do little to force oil companies to lower their product prices to below global price levels. These giant oil companies — even the smaller “independents” — straddle the globe and sell their products all over the world. Everyone should thus understand that they can easily re-allocate their supply of products to markets where they can get the full market price. Despite any public posturing the president of tiny Philippines might assume, they can simply withdraw their products from this market and ship them elsewhere if he compels them to sell at prices below what they can get in other markets. None of these huge multinationals will suffer economic losses simply because a public official in this country asks them to.
There is a demand — again — to repeal the Oil Industry Deregulation Act on the grounds that it has not resulted in the “dismantling” of the oil cartel. To begin with, no one can realistically expect that the deregulation of the oil industry in a small country like the Philippines would result in the dismantling of a worldwide cartel. The global control of crude oil outputs and prices by a group of oil producing countries will not be affected by what we do in our little corner of the world. The only thing we can reasonably expect is that deregulation will permit other (independent) oil refiners and distributors to enter the local market and compete for share in downstream oil products. What we can hope for is that this lowering of the barriers to industry entry will intensify competition enough to bring retail prices down to their lowest possible levels.
There is also a demand that the government scrap the duties and specific taxes on oil products to bring down retail prices. Yes, the government can do that. But, that means that government must forego whatever revenues it now realizes from oil products and must do away with at least some of its public programs. If it does not wish to eliminate any infrastructure and social initiatives, the alternative would be to raise taxes on other products and in other sectors of the economy. The question then would be whether it makes more sense to tax oil products or those other products or sectors. If we take an environmental perspective, it makes more sense to tax oil because oil products pollute the environment and taxes on them in effect make users pay part of the cost of the damage and cleanup.
In any event, scrapping taxes and duties on oil products is a stopgap and short-term solution. What happens when oil prices continue to rise? The drivers and operators of jeepneys and buses will just protest and demonstrate in the streets again.
Too much attention and verbiage is focused on restoring the profit margins of drivers and operators by reducing their costs, this through the lowering of gasoline or diesel prices (assuming that that were possible). Why no attention at all is devoted to the other way of restoring those profit margins, that is, by letting jeepneys and buses charge higher transport fares and thus raise their revenues, is perplexing. If the higher transport fares create a ripple of rising costs throughout the rest of the economy, that is better than letting jeepney and bus drivers and operators absorb the entire brunt of fuel cost increases.
Clearly, the crux of the problem of the transport sector is that the their main input (fuel) is price-deregulated, but their output product (public transport services) is price-regulated. Naturally, the profit margins of operators and the livelihoods of drivers will be squeezed when fuel prices are allowed to rise but transport fares are not. In effect, drivers and operators are being forced to subsidize the riding public. Put another way, one sector of the economy is being sacrificed for the benefit of another.
A long-term solution must address this inequity. That solution will require that public transport drivers and operators be given back some control over their economic fates. Like other business firms, they must be allowed to pass on to consumers whatever part of their costs the conditions of the market will allow them to pass on.
Transport fares must be deregulated. If oil companies can adjust their prices weekly, jeepneys and buses must likewise be allowed to adjust commuter fares weekly by a proportional amount. That’s only fair.
As a necessary complement to such fare deregulation, we also need to abandon the current practice of restricting access to the jeepney and bus market. Entry into the jeepney and bus market should be liberalized. Anyone with a jeepney or bus should be able to enter and register for any route. This will be somewhat chaotic, but it will be equitable.
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By: René B. Azurin – Strategic Perspective
Source: Business World, Sept. 21, 2011
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