Reflections on the Bangsa Moro

Since this is the start of the year, I look into my crystal ball and here is what I see:

Barack Obama to make great moves for a better world. Hopefully, he’ll do a Gorbachev, i.e., strip his country of imperialistic ambitions and create a more transparent (glasnost) American government. Perhaps he will give back some of the civil liberties the Americans had given up in the name of “Security”. He’ll close down the Guantanamo torture center.

Obama ran under the platform of Change. The time to make changes is this year.

End of US/UK - Iraq War

End of Afghanistan War. If this happens, it would not be because America wants to, but because the Taliban would have huge success in the battlefield and in Afghani politics.

Arab-Israeli War. The present Israeli “all-out war” in Gaza could escalate into a bigger war involving other Arabs. This year, a full-blown Arab-Israeli war is a great possibility.

There’ll be another world oil crisis brought about by the Middle east conflict.

Bangsa Moro struggle for self-determination to intensify and to reach new heights.

China vs US. The US would be increasingly paranoid over China.

Cuba vs US (End of Fidel Castro). US would try to redeem itself from the Bay of Pigs fiasco.

Great advances in the space industry. We will be seeing another first in the space industry.

There’ll be technological advances in airline industry but there would be plane crashes, too.

Great advances in Genetic Engineering.

There’ll be riots in Europe to protest government actions, esp, in England

Harry Potter movie another blockbuster

More breakthroughs in computer industry. Bill Gates and Steve Jobs will continue to lord over the industry

Films: sci-fi and socially relevant films to be popular.

Stock markets to crash further in the US, Europe and Japan

A British royal would probably marry or die. Anyway, it will be all over the media

More political – corruption scandals in Philippines

More massive anti-government demonstrations this year (2009) which would determine whether there would be elections in 2010 or not.

MAY 2009 USHER IN PROSPERITY AND PEACE FOR ALL!

According to news reports, Saudi King Abdullah declared in a speech in Mina, Saudi Arabia during the Eid al-Adha: “ Today we are in need of dialogue within the Muslim Ummah itself…sedition, ignorance, and fanaticism constitute obstacles that are threatening the hopes of Muslims.”

According to As-sharq Al-awsat, “King Abdulaziz, stressed that terrorism, which is threatening the entire world, and which is being attributed to Muslims alone, ‘is caused by extremists who represent no one but themselves even if they put on an Islamic character. Islam is innocent of their acts.’”

ISLAM IS INNOCENT BUT THE ARAB KINGS AND SHEIKHS ARE NOT

Of course Islam is innocent. But the Saudi King and his royal cohorts in Saudi Arabia and the Arabian Gulf are not. They are GUILTY of bowing down to the whims and caprices of George W. Bush, Tony Blair and Gordon, Merkel and Olmert and the other leaders of the Western world. They are guilty of not protesting, and even supporting the killing of millions of Muslims in Afghanistan, Iraq and elsewhere, including in Mindanao, in the name of “the War on Terror”.

If indeed  the "extremists who represent no one but themselves", then why do millions of Muslims in the world have to suffer? For a handful of Saudi Arabs who ALLEGEDLY "attacked" America in 9/11, why do whole populations in Afghanistan and Iraq have to suffer? Why should Muslims all over the world be held suspect and their human rights trampled upon in the name of "Security"?

These nouveau riche Arabs who now call themselves kings and princes simply amass wealth for their personal gains, give no assistance to hundreds of millions of Muslims in the world who are steeped in poverty or are living under an oppressive majority or are under constant suspicion of being “terrorists”.

These Arab rulers continue to shore up the flagging economy of the West by massive investments in the US and Europe. They hardly invest in fellow Muslim countries like Pakistan and Indonesia or even in fellow Arab but poor countries like Egypt and Tunisia.

WAR ON TERROR IS WAR ON ISLAM

There is no mistaking about it; the War on Terror is a War on Islam. George W. Bush called it a CRUSADE. But the Saudi King and his clan, including his relatives the Bin Ladens (they are related by affinity) and the ruling clans in the Gulf countries already chose which side they belong. They chose the side of George W. Bush and his sidekick, Tony Blair. The Saudi King, therefore, has no business in calling for a “Dialogue within the Ummah”.

Because of their huge money reserves, these Gulf Arab rulers are very powerful. In today’s financial crisis, they could make or break Western economies. But instead of using their power to promote Muslim interests and the human rights of Muslims all over the world, they keep quiet and let the West’s financial brokers do what they want with their (Arab oil) money.

Perhaps it would be more proper for the Saudi King to first call a Dialogue within his extended clan, which would include Osama Bin Laden himself. After that, he could call a Dialogue with other Arab Gulf countries’ rulers and preferably do some soul-searching.

They should ask themselves, are they still part of the Ummah?

The country’s only oil company, Petron, has now been completely privatized. A country that is perpetually in an oil crisis, a state-owned oil company could be of big help.

PETRON has always been a cash cow. In an oligopolistic market, Petron enjoys at least a third of the market share.

But cash cows for the government are not enough. The incumbent occupants of Malacanang and their cohorts are always looking for deals to make their commissions. And so in the 1990s, Petron was semi-privatized with 40% of its shares sold to Saudi Aramco.

In a footnote to my post Knowledge Society - Oil Deregulation(April 2006),  I wrote:

“It is interesting to note that Petron was sold to Saudi Aramco for about 14 Billion pesos (most of which were easily recouped by Aramco after the IPO which had the stocks’ price soaring almost three times as much as the buying price of Aramco.) And just a year later, PNOC was ordered to infuse 10 billion pesos (of people’s money) to the OPSF so that it can be distributed among the three oil companies. Thus, the Filipino peolple and government not only lost control of the very profitable Petron, it also gave back most of the money it got from selling the company. Truly illogical!”

In the same post, writing about the Oil Deregulation Law, I wrote:

“The Philippines was fortunate to have a national oil company like the ones in Malaysia, Indonesia and Thailand, which have had quite an experience competing with multinationals. Such experience would have proved valuable for the country when deregulation of the industry came. However, for some reasons, PNOC’s refining and distribution arm, Petron, was privatized some years ago. This left the Filipino public purely at the hands of “market forces.” And the oil downstream market is far from perfect.**

Coupled with the fact that the Filipino people do not have an oil company that could compete with the transnationals is the presence of an oil deregulation law that promotes the perpetuity of the existing oligopoly.”

Early this year, A financial management firm from London, Ashmore Group, wanted to buy ARAMCO’S share of Petron. 

This is my post in March 2008, GOVERNMENT SHOULD BUY BACK PETRON:

“Ashmore Group, a London-based investment fund is offering to buy 40 % of Petron shares held by Saudi Aramco.

 PNOC, which owns the other 40%, holds the right of first refusal. And it should exercise that right.

With rising oil prices, this is the best opportunity for the country to take back its only oil company.

It is very important for an emerging economy like the Philippines to have some control over its oil downstream industry. Malaysia has PETRONAS, Thailand has PTT. Both are huge factors in their countries’ progress.

SOCIAL ISSUE 

Ashmore is an investment group and is only interested in profits. The country cannot expect to get anything from it, save for taxes, perhaps.

With Saudi Aramco, the country could ask for a supply guarranty. And being state-owned, there is room for diplomatic negotiations.

CASH COW

Petron is a cash cow. And the government needs a cash cow. If it own 80% of it, then there will be more cash.

GOVERNMENT-TO-GOVERNMENT DEALS

If Petron will become Government-controlled, it could negotiate for better oil deals with oil-producing countries. Then, it could even give greater competition to the two oil majors in the country as well as the so-called new players.

For those clamoring for a repeal of the de-regulation law, the buy-back of Petron will be just as good, if not better.

Regulation is ALWAYS bad in a corrupt regime. De-regulation gives the market forces a chance. Although the Philippine style de-regulation is actually only a semi-deregulation or even an anti-deregulation. It merely strengthens the status quo; i.e., maintains the power of the majors.

If the government buys back Petron, there will still be room for the private oil companies and at the same time, the government can act through Petron in ways that would best serve the needs of the Filipinos.

Typical of the Philippine government, instead of buying back Petron, Ms. Arroyo immediately endorsed it.

I wonder how much was the "commission"?.

I am sure that ASMORE’s purchase of Petron shares made it one of the few British financial firms to remain afloat during this financial storm. And just to prove how profitable Petron is, Ashmore is now buying (it’s a done deal) the government’s 40% share.

I wonder how much was the "commission" then?

And to prove that PETRON is such a CASH COW, SAN MIGUEL BEER wants to buy a big chunk of Ashmore’s shares.

If big international firms want PETRON, why does the government want it sold? Just for the "commission"? 

Now that even the bastions of De-regulation and Free Market economies like the US and UK are calling for more Regulation and a more "managed" economy, a strong state-owned oil company like PTT and / or PETRONAS  should be the order of the day for the Philippines to help the Filipinos from the ambiguities of the market economy and the perennial "oil crisis".

The Filipino public should not complain about oil deregulation and high pump prices. After all, they allowed their oil company to be sold.

 ===========

Petron sale to ease budget deficit

 San Miguel buying spree: first Meralco, now Petron

World crude oil price has dropped from more than US$ 147 per barrel in June 2008 to less than US$ 65 per barrel today. In the US, gasoline pump prices have dropped more than 50 %.

But in good old Philippines, the pump prices remain practically the same. 

In times of increasing world oil prices, the Philippine oil companies promptly announce price hikes practically by the week. But in times of decreasing world oil prices, they "rollback" only a peso at most, and usually, they would not if there were no calls for it from the public.

With the massive plunge in world oil prices, the oil companies in the country are raking it in. And as usual, the poor Filipino consumers are suffering.

Add to that is the increase in power rates for MERALCO granted by the intelligent people of the Energy Regulatory Commission (ERC).

Hurrah for Demagoguery and Mediocracy! Hurrah for the Arroyo administration!

By the way, I have not heard much from Arroyo cheerleaders who claim that their president had done so magnificently for the Philippine economy. I am reminded of them every time I heard McCain, until recently, constantly claiming that the "fundamentals of the (US) economy are strong".

Oh, and now that the American and European economies are in the doldrums, I hope Arroyo would not say that she is so good because the Philippine economy did not suffer as much. Well, like during the Asian Financial Crisis, the Philippines did not fall as much because it was already so low. If you’re already in the Ground Floor, where would you fall to?

Besides, in the country, there is practically no investment banking to speak of, the Stock Exchange is small and the banking and insurance systems are a joke.

BUSH AND THE CLIMATE OF FEAR

It’s so wonderful to be the President of the United States of America. In this supposedly land of great and higher learning, the people are so easy to be fooled even by a man not known for his learning or knowledge.

When some people attacked the Twin Towers, Mr. Bush told the American people to beware of the bomb-wielding Muslims as they will destroy America and the Western civilization. He therefore asked, and got, vast powers and huge amounts of money to wage his Crusade against the Muslims.

While his Secret Service Agents gathered the Bin Ladens and other rich Arabs into a chartered plane out of America, he proclaimed to his fellow citizens that the man responsible for the so-called 9/11 bombings was a Saudi citizen named Osama Bin Laden who was hiding somewhere in the rocky highlands of Afghanistan.

Mr. Bush then asked not only Americans but the world through the United Nations to support him in attacking the Talibans of Afghanistan for harboring Mr. Bin Laden. The Talibans, until that time, were the closest allies of the US in the fight against the Soviet Union. In fact, just a few months earlier, Mr. Bush welcomed a Taliban delegation in the US.

After bombing the poor, war-devastated Afghanistan and turning it into smithereens, Mr. Bush declared his victory even though the bearded 40-ish Osama Bin Laden was nowhere to be found and his supposed group, the Al-Qaeda was still going strong.

He then declared that the next target was Iraq. Never mind that Iraq had nothing to do with 9/11 or with Osama Bin Laden. Bush said that Iraq had “Weapons of Mass Destruction” and therefore should be destroyed before its fearsome leader, Saddam Hussein, bomb the great United States of America.

BREAD AND CIRCUSES

To make the Americans tame, Bush gave them daily dosage of a macabre circus – news of arrested terrorists out to bomb the world, American soldiers fighting terrorists in Afghanistan and Iraq, Iraqi terrorists killing each other, Palestinian terrorists bombing the streets of Israel, etc. This also includes American soldiers helping Filipinos fight the Muslim terrorists in the Philippines and Filipinos helping the Americans in its “Coalition of the Willing.”

To make the Americans happy, prices of goods are kept low – thanks to cheap imports from China. While the US was wont to complain when European or Japanese currencies were too low vis-à-vis the dollar, this time, the US kept mum on low-value Chinese currency in order for US citizens to gorge themselves on cheap Chinese products.

The Federal Reserve kept interest rates low so there would be plenty of money for everyone.

And of course, the American Dream is nothing without the ‘dream house’. And so loans were given to all who want to have their dream homes. And those who needed more loans could avail more from their mortgages.

And developers got more credit from banks to build more homes which were bought on credit by consumers. Credit aggregators collected all these mortgages, lumped them together, issued bonds out of them and sold them to, who else? The Chinese.  These bonds, however, will, sooner or later, mature.

And so Bush kept the Americans happy with credit-facilitated dream homes and cheap goods from China while making the citizens fearful for their security by giving them, through the media, messages of fear – fear from the Muslim terrorist who might be hiding under American beds inside American dream homes.

The fear-stricken Americans had to consent to Mr. Bush’s spending TRILLIONS of dollars in his Iraq and Afghanistan wars.

FOOLING THE PEOPLE

Abraham Lincoln said, You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time. I first heard of this statement by Lincoln when I was in Grade VI. I thought it was not correct. I could not imagine how anyone could fool all the people even some of the time or fool some of the people all the time. In my child’s mind, I knew that there would always be some person or persons who could not be fooled.

But after 9/11, I realized the veracity of Lincoln’s statement. For a while (some of the time), Bush fooled all the Americans and Englishmen and Germans and Filipino centrists and rightists. And he fooled some Americans, Europeans and Filipinos all the time. And now, with his presidential term nearing its end, most Americans, Europeans and most of the world, know Mr. Bush has made fools out of the people.

But oops, Mr. Bush is back with his antics again.

THE BUBBLE BURST

The trillions of dollars on military spending to support Mr. Bush’s Clash of Civilizations foreign policy, the skyrocketing of fuel prices brought about by the Iraq war and the climate of fear as well as greed and speculation money, the Fed’s policy of low interest rate to increase money supply, the rampant spending and lack of savings by Americans lulled into believing that their economy was “fundamentally strong”  (after all, they have cheap homes, cheap goods, easy credit, etc.) necessarily would have dire consequences for their economy.

And so the bubble burst and giant financial institutions came tumbling down.

FREE MARKET ANYONE?

During the Asian Crisis in the 1990s, the Americans and their British cousins told the Asians not to interfere with the market. They told the Koreans not to bail out the banks. These champions of laissez-faire capitalism told everyone that the market will always fix itself.

Don’t be afraid of falling exchange rates, these people said. Never manage currencies. The market will soon fix itself.

The US Republican Party trumpets its policy of “less government”, de-regulation and privatization.

But now, all of a sudden, President Bush, who is a Republican, wants to do what is against the grain of Republican ideals. He wants to bring in the government into the business and financial sector. Why? It is because the rich kids of Wall Street, the “Masters of the Universe”, have gone bankrupt.

And Henry Paulson, the Treasury Secretary, was a Wall Street guy himself. His stint at the Goldman Sachs earned him some US$ 140 Million. As a good tribesman, he is convincing Congressmen and Senators to help save his tribe of “Masters of the Universe.”

Interestingly, according to the Daily Telegraph (July 2008), "Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country more than 70 times."

SAME OLD ANTICS

George W. Bush is back at his old antics. Just as he frightened Americans of Muslim terrorists and weapons of mass destruction, he is now trying to frighten the Americans out of their wits by claiming that if they don’t support his Trillion-Dollar Bailout, they could expect a financial “PANIC” soon. The plan calls for an immediate 700 billion dollar bailout of financial institutions, in addition to the 300 plus billion already allotted for Freddie Mac and Fannie Mae, Bear Stearns and AIG. Several hundreds of billions of dollars more are expected to be given out later.

STRONG ECONOMIC FUNDAMENTALS

Senator McCain, throughout the campaign period until the bubble burst recently, kept on repeating that the American economy has strong fundamentals. As Barack Obama said, McCain was fundamentally wrong.

Even the conservative Republican John McCain, who has been telling everyone that “government should not be in the way of the people”, that there should be as less government as possible, is now forced to endorse Mr. Bush’s Trillion Dollar Bail-out. The Bush-Paulson bail-out plan runs counter to fundamental beliefs and policies of the Republican Party.

The bail-out plan is practically the nationalization of Wall Street. The Democrats are thrilled because they think they can hijack the plan to favor less the money magnates and more the common man.

The oilman’s son, Mr. George W. Bush, used the scare tactics to coerce the people to support his wars in Iraq and Afghanistan and thus get juicy oil contracts for his oil friends from Halliburton and other oil companies.

Now, he is again using the same scare tactics to coerce the American people to help his rich friends, who have terribly mismanaged American people’s money, keep their companies and rich lifestyle.

By insisting on the Trillion Dollar or more bail-out, Mr. Bush is showing that his loyalty has never been to the Republican Party or its ideals but to his high and mighty friends in the oil and financial industries.

Woe to the American people. Finally, the beginning of the end is at hand for the world’s remaining superpower. Without economic power, no nation can remain a military power. And thanks to Mr. George W. Bush, the world is now seeing the collapse of American economy.

Oil price is now down at US $ 89.00 per barrel. Just some weeks ago, it was over UD$ 140 per barrel and some so-called experts were predicting that it would go beyond US $ 200 / bbl.

And of course, the Muslim-hating Americans and Filipinos keep on pointing at the “greedy” OPEC countries, who happen to be mostly Muslims.

When intelligent people tell these finger-pointing individuals that the culprits are mostly the speculators, they would not believe it. They would always point to what the “experts” say; i.e., it is due to the law of supply and demand. And since most of the supply is with the OPEC members, they limit their production and so the price goes up.

For months on end, I’ve been telling people that the oil price increase is artificial. There has always been so much oil – physical oil. Even with the sharp increase in demand because of the booming Chinese and Indian economies, there was still plenty of oil for everyone.

FEAR AND GREED

However, because of the fear and greed of the developed economies, they pumped the price of oil sky high. First, the companies in developed economies were afraid that most of the oil will go to China or even India, so they bought so much – not only physically (physical trading) but also through paper, i.e., futures and swap contracts. They call it hedging or risk management.

Second, because of greed, speculators invest heavily in the futures and oil derivatives market. They call it trading or portfolio diversification.

Meanwhile, the actual demand for physical oil remains the same. The oil suppliers have been saying that there is over-supply of oil, but nobody seems to believe them.

Just recently, OPEC REDUCED oil production, still claiming that there is over-supply. Some “experts” were surprised because they thought that OPEC would INCREASE oil production. The US has constantly pressured Saudi Arabia to increase production and it constantly did. Now, OPEC said enough is enough.

INSTANT FALL OF OIL PRICE

Now, despite OPEC’s reduction of oil supply, the oil price dropped tremendously. Why? Because the price increase was ARTIFICIAL.

The fear and greed of the companies, institutions and individuals of the developed economies have brought ruin to their own kind. The price increase of gasoline has created havoc in the US, especially in its automobile and airline industries.

With the collapse of American mortgage giants, iconic investment banks and the world’s largest insurer, the greedy speculators are finally selling off their oil portfolio.

FREE MARKETS ANYONE?

During the Asian Crisis, the Americans, Europeans and Filipino Amboys kept on saying. “Don’t bail-out companies. Sacrifice! Let markets be free.” Well, now, look who is bailing out companies? The Republican-controlled US government!

The vaunted free market economy of the US is in danger of collapse. The housing market has collapsed leaving millions of Americans unable to pay their mortgages. The government-sponsored mortgage giants Fannie Mae and Freddie Mac almost went bankrupt and had to be bailed out by the Federal Reserve Bank.

Then came the fall of investment banks Bear Stearns and Lehman Brothers and the sale of Merryl Lynch. For anyone who knows a bit of financial markets, s/he would realize that when the 158-year old Lehman Brothers falls, the system must be in BIG trouble. Add to that Bear Stearns and Merryl Lynch, then the free market system of America certainly needs some fixing.

Now comes the fall of the world’s biggest insurer – American International Group (AIG). In school, we were taught that banks could collapse anytime and it would not do much damage to the country or system, but if insurers fall, it is time to run. AIG just happens to be the world’s biggest insurer.

CHINESE CONNECTION

The Fed has to save Fannie Mae and Freddie Mac not only because they were thinking of the poor Americans who may be homeless soon, but because most of the debts of Fannie Mae and Freddie Mac have been bought by central banks and government financial institutions of other countries, especially China and “friendly” Arab countries. As government-sponsored entities, Freddie Mac and Fannie Mae bonds are practically guaranteed by the US government and gives higher interest rates than Treasury bonds.

The Americans have actually been taking out their housing mortgage from Chinese communists and Arab Muslims (terrorists?)

The US wants to save face in the world’s financial markets.

Bear Stearns, an investment bank, was also lucky enough to be saved by the government. It, too, has lots of foreign clients. Bear Stearns has a partnership with the Chinese government-controlled CITIC Securities Company.

Unfortunately for Lehman Brothers, the US government did not think it has lots of foreign investors, especially Chinese.

And now comes American International Group’s (AIG’s) collapse. Again, the Fed stepped in. AIG, too has lots of business in Asia, especially China. In fact, it was founded in Shanghai in 1919. In 1980, China AIG was formed on a 50-50 joint venture between AIG and the People’s Insurance Company of China.

No wonder Gloria Macapagal Arroyo has a fascination for Chinese business ventures like the ZTE-NBN. She is just following the moves of her idols, George Bush, father and son.

We are in the middle of an oil crisis and we are letting go of our own oil company, PETRON. Ashmore,a Lond0n-based investment fund group is buying ARAMCO’s 40 % share. With PNOC having the right of first refusal, now is the most opportune time to buy back Petron. Petron is a CASH COW. Ashmore is an investment fund firm. It is interested only in profits. But Petron should be more than a profitable firm. The country needs its OWN oil company to protect it from the vicissitudes of the oil industry and to compete against other oil majors just as what PETRONAS and PTT is doing for Malaysia and Thailand respectively.

Strangely, according to reports, President Arroyo thinks that "Ashomore’s decision to buy Petron shares is a ‘vote of confidence’".

Below is a report I did in the late 1990s/2000 about Oil Deregulation and PNOC. I think I submitted a copy to Pres. Arroyo when she first became President in early 2001. It is titled "Probable Solutions to the Oil Price Crisis." Since we are in the midst of another oil price crisis, I am publishing it here:

                        PROBABLE SOLUTION TO OIL PRICE CRISIS

OIL  DEREGULATION

In March 1996, Congress passed the Downstream Oil Industry Deregulation Act of 1996 or R.A. No. 8180. There was not much public protest since the concept of a deregulated oil industry is not well understood. But a few gentlemen questioned the constitutionality of the law, and brought it up to the Supreme Court. The petitioners zeroed in on the three allegedly prejudicial provisions; namely: tariff differential, the inventory requirement and the predatory pricing clauses. The petitioners averred that the law ran counter to its objective: "to foster a truly competitive market".

On November 5, 1997, in a move that surprised many, the SC declared RA 8180 unconstitutional and ordered the legislature to create another law, but this time adhering to the tenets of the Constitution.

In its decision, the SC declared :

Again, we underline in scarlet that the fundamental principle espoused by section 19, Article XII of the Constitution is competition; for, it alone can release the creative forces of the market. But the competition that can unleash these creative forces is competition that is fighting yet fair. Ideally, this kind of competition requires the preserve of not one, not just a few but several players. A market controlled by one player (monopoly) or dominated by a handful of players (oligopoly) is hardly the market where honest-to-goodness competition will prevail. Monopolistic or oligopolistic markets deserve our careful scrutiny…."

 

It went on to emphasize that:

"…the perpetuation of RA No. 8180 threatens to multiply the number of our people with bent backs and begging bowls.  R.A. No. 8180 …cannot be allowed by this court to stand even while Congress is working to remedy its effects."

And it concluded with rhetorical flourish:

"…the Constitution is a covenant that grants and guarantees both the political and  economic rights of the people." The Constitution mandates this Court to be the guardian not only of the people’s political rights but their economic rights as well. The protection of the economic rights of the poor and the powerless is of greater importance to them for they are concerned more with the exoterics of living and less with the esoterics of liberty. Hence, for as long as the Constitution reigns supreme, so long will this court be vigilant in upholding the economic rights of our people especially from the onslaught of the powerful. Our defense of people’s economic rights may appear heartless because it cannot be half-hearted."

(Amen.)

Congress immediately cobbled another law, R. A. 8479, which is actually just RA 8180 without the provisions that the Court found "odious" and "offensive." Some enterprising gentlemen again petitioned the Supreme Court, this time zeroing in on the transition period.

Three years after RA 8479, the kind of competition the SC envisioned still is nowhere in sight. The arguments cited for declaring RA 8180 unconstitutional appears to be as valid against RA 8479, the present oil downstream deregulation law.

There were, and still are, calls for a repeal of the law. But this would just bring us back to regulation. Regulation is the mechanism for controlling consumer prices; however, there is a price to it. The government is forced to give subsidies, but the government gets its money from the people. It’s a Catch-22 situation. Regulation also stagnates growth, inspires complacency and promotes inefficiency.

If one were to take heed of the zeitgeist, it is very clear that regulation is now out of the question. De-regulation is simply the order of the day, not only in the oil industry, but also in practically all industries.

The main function of deregulation is to give a freer reign to market forces. It opens up the market. Even if there were many and huge barriers to entry, the mere threat of entry would stimulate the industry. Existing firms, be they monopolistic or oligopolistic, would be forced to innovate, streamline and be efficient. Otherwise, the mere threat (of entry) would translate to new entrants. Or, other existing firms, which heeded the call of deregulation (i.e., modernization, streamlining, efficiency, etc.) would eat up the market share.

Theoretically speaking, in the long run, efficiency and growth of the industry would translate into better quality goods and services, higher tax revenues for the government and even lower prices for the consumers.

What’s the catch ?

The Philippines was fortunate to have a national oil company like the ones in Malaysia, Indonesia and Thailand, which have had quite an experience competing with multinationals. Such experience would have proved valuable for the country when deregulation of the industry came. However, for some reasons, PNOC’s refining and distribution arm, Petron, was privatized some years ago. This left the Filipino public purely at the hands of “market forces.” And the oil downstream market is far from perfect.

***(It is interesting to note that Petron was sold to Saudi Aramco for about 14 Billion pesos, most of which were easily recouped by Aramco after the IPO which had the stocks’ price soaring almost three times as much as the buying price of Aramco. And just a year later, PNOC was ordered to infuse 10 billion pesos (of people’s money) to the OPSF so that it can be distributed among the three oil companies. In effect, the Philippine government, and by extension the Filipino people, got only 4 Billion pesos for 40 % of Petron!!!)***

Coupled with the fact that the Filipino people do not have an oil company that could compete with the transnationals is the presence of an oil deregulation law that promotes the perpetuity of the existing oligopoly.

CONTROVERSIAL PROVISIONS

The tariff differential created a big fuss and was one of the reasons for the Supreme Court’s junking of the first Oil Deregulation law. But it is just another barrier to entry. The existing barriers to entry are already too numerous for the tariff differential to be significant. In fact, the three companies are better off without it as they can gain more in terms of goodwill rather than get all the bad publicity because of it.

Another controversial provision of the first deregulation law is the “predatory pricing” clause. Any price “lower than the industry average” is prohibited. With all the formidable forces against a new entrant, lower price would be its only weapon to attract customers and earn profits. But before being able to exercise "predatory pricing", one has to enter the industry first and must have huge resources to be able to challenge the so-called Big Three. Shell, Petron and Caltex cannot possibly be expected to sit back while a new entrant would come in with lower prices.

And as for the existence of a cartel, it must be re-iterated that this should not be the point of contention. One will only encounter the sophistry of company lawyers, paid apologists, jargon-loving bureaucrats and media consultants The fact is that the present market structure is, by definition, a STRICT OLIGOPOLY. And in such a situation, one cannot expect healthy competition.

All the reasons cited by the Supreme Court for declaring the first Oil Deregulation law unconstitutional remain valid. The provisions cited by the Supreme Court (predatory prices, oil inventory and differential tariff) affect only ONE of the FIVE basic competitive forces of an industry. (Porter, Michael E., “The Structural Analysis of Industries”, Competitive Strategy, New York, Free Press 1989, p.3). And even in that one (potential entrants), the existing barriers to entry are numerous enough to protect the interests of the existing oligopoly.

However, in the imperfect real world, it would have been a miracle for the Supreme Court to declare the new oil deregulation law unconstitutional for the following reasons: First, when the SC declared the first oil deregulation law unconstitutional, it was not as popular as it should have been. One popular economist / TV personality even chided the SC’s decision and said that it was the cause of the oil price increase then. If the so-called progressive and well-known economists came out against the SC ruling, who was left to defend the SC justices?

Second, the alternative being espoused for the deregulation law is a return to regulation or Price Control. The leftists’ call for price control would be hard to defend in this age of globalization, deregulation, and free trade zones.

Third, some petitioners were merely questioning the length of the transition period. How would the justices know how much time would be enough? Moreover, with the market forces obtaining in the oil industry, the transition period can be extended to 20 years yet not much will change. A new entrant cannot possibly compete with the Big Three unless it is ready to use huge amount of resources that would force the Big Three to welcome it to the club. It will then be called the Big Four. The market would remain an oligopoly.

Fourth, and most importantly, oil deregulation remains an IMF "conditionality".

Probable Solutions

 A new Supreme Court ruling

De-regulation, as already pointed out, has many advantages, especially in this age of globalization. And it would be to the advantage of the country to have a real deregulation and not, in the words of a Supreme Court justice, "pseudo-deregulation." Real deregulation promotes competition. It does not tend to protect existing oligopolistic market structures.

A new petition to the Supreme Court to declare R.A. 8479 unconstitutional for the simple reason that the present law will not change the present market structure; i.e., an oligopoly, even for a hundred years. The SC should order the legislature to frame a new law that would give a freer reign to the other competitive forces in order to have real competition in a truly deregulated environment.

For example, for the "BUYERS forces" to be competitive, all gasoline stations and other retailers must be free to buy from any supplier, domestic or international. All the thousands of existing franchisees of Shell, Petron and Caltex must be free to buy from any supplier they choose. This would mean that the law must force the Big Three to re-negotiate their contracts with the retailers so as to give the latter freedom to choose their suppliers. This would be a tall order indeed. But if it were done, it would free not only the "Buyers forces" but also the "Sellers forces" as all oil companies in the world would now have a market for their products in the Philippines. The suppliers would then have reason to set up trading posts here so they can sell to both wholesalers and retailers. Only the Supreme Court can order this, and this needs nothing short of a miracle.

There are many others ways that the government can do to encourage competition in the Buyers and Sellers groups. For example, the government can help set up huge cooperatives, such as a national fisherfolk’s (including big-time tuna fishing companies) cooperative that would buy and maintain its own diesel fuel depot. This cooperative can then hunt for bargain diesel fuel in the world market and sell the product to its members. This would give the Big Three competition.

(Note: I forgot to include a big factor in the equation – SMUGGLED OIL)

Oil Exchange

Rep. Enrique Garcia’s proposal for the creation of an Oil Exchange is quite a novel idea. No other country does it, no country ever will (except maybe the Philippines). He patterned it after the power (electricity) industry or the US natural gas industry where such "exchange" entities were created as a result of unbundling the power and natural gas industries. The characteristics of the electricity and natural gas markets are very very different from that of the oil industry.

First, how can the government declare full deregulation on the one hand and have an Oil Exchange on the other?

Second, no sane exiting oil company with a refinery or storage facilities would agree to it.  Would any company simply sit back and allow a government entity to sequester its warehouse, import new stocks and simply allow this company to bid for the new stocks?

Third, even if there were such an Oil Exchange, all the gasoline stations are not allowed by their contracts to buy oil products from companies other than its principals. Contractual obligations are protected by law and even by the Constitution.

If it could be done, it would be immensely easier if Congress would make a law that would free all gasoline stations and other retailers from their contractual obligation of buying only from the principals. This will open the oil retail market to the world’s players (There are hundreds of them, not just 40 as asserted by Rep. Garcia.) There would then be no need for a state-run Oil Exchange. All oil products suppliers can directly sell to the retailers, thus creating good competition that is necessary for lower prices.

Fourth, nobody can force the Big Three to bid. They could very well refuse to bid and simply sell their oil products in the world market. These companies are transnationals, vertically integrated and have huge resources. In fact, they are even richer than the Philippines.

Fifth, the oil exchange would be run by Government bureaucrats, and therefore would again be under bureaucratic red tape not to mention probable graft and corruption.

Sixth, there are very very few Filipino bureaucrats who are knowledgeable in the practices of the world oil industry. Operating an oil exchange would need expertise in arbitrage, hedging and other financial analytical tools in order to insure profitability. Philippine oil company officers never gained experience in oil products financial markets because the government gave them OPSF and foreign exchange cover incentives. Besides, the mother companies usually handle all financial market dealings.

Another option :     Regain control of PETRON

Petron has a contract to buy 90% (recently changed to 70%) of its oil exclusively from Saudi Aramco. In exchange, Petron should demand substantial discounts on its crude prices. Contracts discount is ordinary practice, esp. in government-to-government contracts.  Petron can then afford to sell its products cheaper than the other transnationals.

It would be a great move on the part of the government to regain control of Petron either through a change of its representatives in the Petron Board or buy back from the market (i.e., through the Stock Exchange) five to ten percent (5% - 10%) of the shares in order to gain majority control. It is highly unlikely for Aramco to protest such moves. In fact, in the contract with Saudi Aramco, Petron has the right to buy back from Aramco up to 10% of the shares.

*** (Note: Ashmore is buying the ARAMCO shares. PNOC has the right of first refusal. This is the greatest opportunity to buy back Petron.) ***

Still another option:    a new  PNOC

Incidentally, the Supreme Court noted that on "November 9, 1973, President Ferdinand E. Marcos boldly created the Philippine National Oil Corporation (PNOC) to break the control by foreigners of our oil industry." It is quite interesting to note that by its Charter, PNOC is mandated "to provide and maintain an adequate and stable supply of oil and petroleum products for the domestic requirement" and "to foster oil or petroleum operation conditions conducive to a balanced and sustainable growth of the economy." However, PNOC today does not appear to want to have anything to do with its mandate.

However, if PNOC would want to live by its Charter, it can sell all its shares in Petron (i.e., totally privatize Petron.) It will then be free of its obligation to buy oil from Saudi Aramco.

The best and fastest way for the Filipino consumers to be protected in a deregulated oil industry is to have one of its leading players on its side just as State-owned PETRONAS, and PTT of Malaysia, and Thailand respectively are competing very well in their own deregulated environment.

PNOC can re-establish itself as a state-owned refinery and oil distribution corporation. The proceeds from the sale of the Petron shares can finance the revitalized PNOC. It can start by building several gasoline stations in strategic locations, especially in places where it has real estate property.

*** (Note: But since ARAMCO is selling its shares, this is the biggest opportunity to buy Petron back. Petron is a CASH COW. The investment can easily be recouped) ***

PNOC can scout for discounts from friendly Muslim countries. Or the government can exempt PNOC from some duties/taxes.  In this way, the government will not be forced to reduce oil taxes for all oil companies like what some sectors are now demanding.

PNOC can then afford to sell oil products AT A CHEAPER PRICE (during times of oil price crises).  This would have GREAT IMPACT on the people and would win a lot of GOODWILL for the government

Eventually, PNOC will establish a refinery or two, probably in Mindanao or the Visayas. A Mindanao refinery can also sell its products to neighboring areas in Indonesia and Malaysia (yes, they also buy petroleum (refined) products).

The new PNOC option does not violate the Oil Deregulation Law and therefore would get the nod of the IMF. There would be no need for controversial legislative measures. There would be no need to create new and unique institutions (like an Oil Exchange), whose exact functions and characteristics are only vaguely imagined by its proponent.

An active and thriving national oil company can even drum up patriotic fervor.

CONCLUSION

In sum, the "fundamental principle espoused by section 19, Article XII of the Constitution", i.e. — "competition that is fighting yet fair" is still absent from the industry. An oligopoly of three foreign firms controls the oil downstream industry and RA  8479 insures the perpetuation of this market structure.

A State-controlled oil company manned by knowledgeable foreign-trained technocrats, who can compete, at least in this country, against multinational oil giants while protecting the interests of the Filipino people would be ideal.

But this is just a short-term solution. The nature of the oil industry is such that an oil price crisis can come anytime, esp. since practically all the oil is imported. There must be a serious long-term strategy on oil and gas exploration, renewable energy research demonstration and development (RD&D), and development of an oil downstream industry that would give a free reign to market forces.

The fate of the Philippine downstream oil industry is not in the hands of the big multinationals. It lies in the hands of the Filipino people; or rather, its leadership.

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See related post:  GOVT SHOULD BUY BACK PETRON