Who cares about smuggled oil?

Petron Corporation, the country’s largest oil company, has alleged that about one out of every three liters of gasoline or diesel sold in the Philippines is smuggled. For the government that translates to P30-40 billion in lost revenues a year, said Petron boss Ramon S. Ang. For the company it means fewer profits because smuggled oil can be sold at extremely low prices and undermine Petron’s market share.

But why should ordinary Filipinos, who have been forever abused by Petron and other big oil firms, care? Jeepney, taxi and tricycle drivers, the small fishers and farmers do not mind buying smuggled oil if that’s the only way they can boost their meager income eroded by ever rising fuel costs. They simply can’t empathize with Petron’s predicament of seeing its profits fall to “just P2.3 billion” last year. They can’t appreciate the lost government revenues either since social services are hardly felt anyway. Just ask Kristel Tejada’s parents.

If there is one issue that matters to ordinary folks in the allegation of Ang is the huge tax burden imposed by government on a commodity as socially sensitive as oil. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12% value-added tax (VAT) and the excise tax. This allows some retailers to sell cheap oil.

How much do government taxes add to the retail price of petroleum products?

As of April 2, 2013, the retail price of gasoline in Metro Manila ranges from P48.65 to P54.64 per liter, based on the monitoring of the Department of Energy (DOE). The VAT is about P5.84 to P6.56 per liter (12% of the retail price). The excise tax, on the other hand, is fixed at P4.35 per liter. Thus, the VAT and the excise tax comprise around 20 to 21 percent of the current retail price of gasoline.

Compare it to the percentage of government taxes to the pump price of gasoline in the US which is just about 12% (more details here). The Philippines, in fact, has one of the largest taxes as a percentage of gasoline retail price in the world, together with Hong Kong, Thailand, New Zealand, Cambodia and Singapore (read more here). The same thing is true for diesel, which is has zero excise tax but is also imposed with the 12% VAT.

The country’s oil products carry high government taxes despite the elimination of the 3% import duty on crude oil and refined petroleum by the Arroyo administration in 2010. Refusing to scrap the VAT and the Oil Deregulation Law, it was government’s attempt to mitigate the impact of soaring global oil prices.

But it was a futile move. Pump prices remained high and continued to increase exorbitantly in a regime of deregulated prices. The basic problem of monopoly control, overpricing and speculation remained, which even the so-called Independent Oil Price Review Committee (IOPRC) acknowledged. And compounding the consumers’ predicament is the oppressive 12% VAT on oil, in which government revenues increase as oil prices skyrocket.

Consumers need lower oil prices. Government must find ways to reduce them. One immediately doable step is to scrap the VAT. Government may retain the excise tax or re-impose the 3% tariff (except for the most socially sensitive oil products like diesel, kerosene and LPG) but the VAT should go. Government should also devise tax measures that will make oil firms, especially the biggest and most profitable ones, shoulder more tax burden.

As for smuggling, it must be addressed within the framework of deep reforms in the industry and with the aim of dismantling the oil monopoly and curbing price abuses. The problem of rampant smuggling can only be solved if the downstream oil industry is strictly regulated by government.

One possible measure is a system of centralized procurement wherein the Philippine National Oil Company (PNOC) or any relevant state agency will be the exclusive importer of crude and refined petroleum. Under this system, it will be easier to track or identify smuggled oil, e.g. anything not imported by the PNOC is automatically considered smuggled. It will also help minimize the overpricing of oil companies. (End)

Join “people power” vs. high oil prices and Noynoying, join CAOPI

The media called it People Power against oil price hikes. And maybe it is, considering how the issue of very high oil prices has united various groups from a wide political spectrum. From militant labor and transport to businessmen, from progressive lawmakers to the more traditional legislators, from Church leaders to the radical youth, from civil society to national democratic organizations. Looking at the lineup of the convenors and supporters behind the Coalition Against Oil Price Increases (CAOPI), one would get a sense of broadness that could resemble those of the movements which toppled two regimes.

Broad coalition

CAOPI was launched last Monday (March 26) in a press conference at the UP campus in Diliman. Convenors and supporters who were present include the progressive bloc in Congress led by partylist representatives Teddy Casiño of Bayan Muna, Ka Paeng Mariano of Anakpawis, and Raymond Palatino of Kabataan; Zambales Rep. Mitos Magsaysay, one of the most vocal critics of the Aquino administration;  former legislator and now publisher Jacinto Paras; Marikina City councilor Jojo Banzon; Alliance of Concerned Truck Owners and Operators (ACTOO) President Ricky Papa; a representative of National Economic Protectionism Association (NEPA) President Bayan dela Cruz; UP Professor and VP for Public Affairs Danny Arao; Anti-Trapo Movement President Leon Peralta; Francis Mariazeta III, a barangay chairman in Manila; and think tank IBON Foundation Executive Director Sonny Africa. They were joined by national leaders of organizations under the multisectoral Bagong Alyansang Makabayan (Bayan), including militant labor Kilusang Mayo Uno (KMU), transport group Piston, fisherfolk group Pamalakaya, urban poor group Kadamay, women’s group Gabriela, youth groups Anakbayan and National Union of Students of the Philippines (NUSP).

Other personalities who joined the coalition or expressed support but were not present during the launch are Novaliches Bishop Emeritus Teodoro Bacani, Philippine Chamber of Commerce and Industry’s (PCCI) Donald Dee, National Council for Commuter Protection (NCCP) President Elvira Medina, and Manila City Councilor DJ Bagatsing. CAOPI convenors also include members of the Catholic and Protestant clergy, union presidents of the some of the country’s largest companies, as well as student councils of several universities in Metro Manila. (Download the initial list of CAOPI’s convenors and supporters here)

Inaction, crime against the people, too

CAOPI is not calling for the ouster of the Aquino administration. Its raison d’etre is fairly modest – that is for the President to recognize the worsening problem of high oil prices and concretely do something to address it. In its unity statement, the people and groups behind CAOPI said that they are “alarmed and enraged by the inaction of President Benigno Aquino III amid the spate of oil price increases.” The coalition demands that “government immediately intervene to stop the unreasonable oil price hikes, bring down the prices of petroleum products, and control oil prices.”

Edwin Lacierda, Aquino’s arrogant spokesman, as expected dismissed the newly-formed group, insisting that government is addressing the problem. “Kung ayaw n’yong makinig, ano’ng magagawa namin? Kung ayaw nilang maniwala, ano’ng magagawa namin?”

But the simplicity of its message and the concreteness and more importantly, the legitimacy of its demands – amid escalating fuel prices and popular perception of Noynoying – give CAOPI the vast potential to steadily grow and persist, yes, like People Power. Not even the vaunted high popularity rating of Aquino will endure the groundswell of protests and social unrest if government will continue to ignore the problem and insist on its problematic policies like the Oil Deregulation Law and the 12% value added tax (VAT). Note that surveys also show the deteriorating public perception on Aquino’s inaction on high oil prices (for instance, read here).

The Yellow crowd may argue that it is baseless to invoke People Power against Aquino because unlike Marcos and Erap, he is not corrupt. In fact, he is going after Gloria Arroyo, Renato Corona, and their cohorts in plundering the nation. These people are plunderers and they should be punished (although it remains to be seen if Aquino will go all the way in punishing their corruption even if it means undermining the status quo that serves the political elite like Aquino). But going after Arroyo while tolerating and legitimizing the bigger plunderers like the foreign oil companies and their local partners is also a crime against the people. Insisting on collecting the VAT on oil at the great expense of the people is a crime as grave as, if not worse than, collecting tongpats from government projects.

Just and legitimate

CAOPI’s demands and proposals are just and resonate the sentiments of our people. It said that the Aquino administration’s excuse that it is helpless amid escalating fuel prices is unacceptable as it argued that concrete steps can be immediately taken such as: Imposing a moratorium on more oil price hikes, which it said the President can do due to the extraordinary situation of high oil prices undermining public and national interests; immediately bringing down oil prices by removing, suspending or reducing the regressive VAT on petroleum products; and addressing overpricing by oil companies and regulating local prices by and repealing the oppressive Oil Deregulation Law. It challenged President Aquino to exercise political will and implement these reforms to protect the interest of ordinary consumers and the domestic economy. (Download the CAOPI unity statement here)

The group is not asking the people to swamp Edsa to pressure the President to take decisive, pro-people steps against high oil prices, well not yet. But it is asking the public to participate in a series of actions that will force Aquino to listen and do something, beginning with a coordinated noise barrage on March 30. CAOPI declared that it will continue to pressure Aquino and the entire government until they address the urgent problem of excessive oil prices.

Join CAOPI

No group, including the Aquino clique, has a monopoly over People Power, which in its simplest form is about the people asserting its sovereign power to determine which policies best serve their welfare and interests. In demanding that Aquino reverse its position on the VAT and the Oil Deregulation Law and mobilizing the broadest support possible, CAOPI is indeed exercising People Power.

If you wish to become a member or supporter of CAOPI, you may contact its Secretariat at caopi.secretariat@gmail.com and include your name in its Unity Statement. You may also visit the website of Bayan (www.bayan.org) for updates and more information. #

Mar Roxas: From Mr. Palengke to Mr. Perwisyo

Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion (Photo from plurk.com)

On the heels of the successful nationwide people’s protest against high oil prices last March 15, Malacañang reaffirmed its position not to lift the 12% value-added tax (VAT) on oil. One of the administration officials who immediately articulated the Palace stand was Mar Roxas, secretary of the Department of Transportation and Communications (DOTC). Defending the oil VAT, Roxas said that revenues generated by the controversial tax “are being used to render services to the public”. “It’s easy to say ‘stop collecting taxes’ but this would mean that a particular government service will be affected,” Roxas argued.

Mar column

It’s amazing how fast Roxas changed his mind about the oil VAT. To those who have a short memory, let me refresh your recollection by quoting portions of Roxas’s column Mr. Palengke that the tabloid Abante used to publish. The opinion piece, entitled “$100 kada bariles”, was published by the popular daily in its Jan. 8, 2008 issue. It was Roxas’s reaction to the then escalating prices of oil that for the first time breached the $100-a barrel mark.

(Click on image to download full article)

“Hindi na po normal ang sitwasyon natin ngayon. Alam nating ang langis ay talagang nakakaapekto sa lahat ng aspeto ng pamumuhay: transportasyon, pagkain, kuryente, manufacturing ng mga produkto, at marami pang iba. Kaya sa bawat pagtaas ng presyo ng langis, sumusunod naman ang presyo ng iba pang produkto at serbisyo. Nanganganib talaga ang bulsa ni Juan dela Cruz. Maikli na ang kanyang pisi, lalo pa itong iikli.

Naaalala ko, noong kakatapos lang na ipasa ang Expanded Value-Added Tax Law noong 2005, sumipa ang presyo ng krudo mula $36 kada bariles hanggang $56, at natakot tayo noon na sumipa pa ito sa $75 kada bariles.

Ngayon, $100 na, ang layo na sa dating mga presyo at kailangan na talaga ang parehong mga agaran at pangmatagalang solusyon sa umaalagwang presyo ng langis. Kailangan na ng political will. Walang lugar para sa mga “token-ism,” o mga pakitang tao. Kung talagang ginugusto ng pamahalaan na makatulong sa ating mga kababayan, isang malinaw at kongkretong hakbang na maisasagawa ay ang agarang pagsuspinde sa EVAT sa langis at mga produktong petrolyo.

Agarang ginhawa sa halagang P4 kada litro ng diesel o P60 kada tangke ng LPG ang maidudulot nito. Kung gusto talaga ng pamahalaan na mapaginhawa ang buhay ng ating mga kababayan, sana’y suportahan nila ang ating panukala.

Hanggang ngayon, tila ba hindi pa rin nagbabagong-loob ang administrasyon dito. Nakakalungkot, dahil P20-30 bilyon lamang ang mawawala sa pamahalaan sa anim na buwang suspensiyon ng EVAT sa langis, kumpara sa kalakhang P1 trilyong revenues nito. At sabihin nang sa mga social services daw, tulad ng edukasyon at kalusugan napupunta ang pondong ito, nararamdaman ba ninyo ito?

Ang nakakalungkot pa, malaking halaga ng buwis na dapat makolekta ay nawawala dahil sa katiwalian at iba pang mga leakages. Noong 2006 nga, ayon sa isang pag-aaral ng DOF mismo, may P107 bilyon ang hindi nakolekta dahil sa mga leakage. Ang lalong nakakalungkot, ang kalakhan ng mga leakage ay naroon sa mga buwis na hindi nakokolekta sa mga malalaking tao. Hindi nakolekta ang P81.96 bilyong potensiyal na kita mula sa corporate income tax. Samantala, ang tinatawag na “tax gap rate” sa income tax ng mga negosyante at propesyonal ay nananatiling mataas, sa 40%, kumpara sa tax gap rate ng income tax ng mga manggagawa, na nasa 10% lamang.”

Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno. Hangga’t hindi natin nakikita na mahusay ang paggastos ng gobyerno sa pera ng taumbayan, mabuting ibalik muna ito sa kanila upang maibsan ang kanilang kahirapan. Ipinasa noon ang EVAT dahil nanganganib na humina ang ekonomiya dahil sa sinasabi nilang “fiscal crisis”. Ngayon naman, nanganganib na bumagsak ang ekonomiya kapag naipit nang naipit ang pagkonsumo ng ating mga kababayan. Ibang sakit ang ating nararanasan ngayon, hindi puwedeng parehong gamot pa rin ang ating inumin.” (All emphases mine)

People deserve break

Roxas used to think that removing the VAT on oil, even if temporarily as he proposed then, will translate to immediate benefits for the poor. In his 2008 column, he said it’s P4 per liter for diesel and P60 per 11-kilogram (kg) tank for liquefied petroleum gas (LPG). Today, the immediate benefits are even bigger – for diesel, it’s almost P6 per liter and for LPG, as much as P110. “Government believes it should keep on collecting EVAT on oil and be the sole arbiter on how these revenues should be reallocated. I say, let’s give our people a break… Give the people instantaneous relief from high prices and meager incomes,” said then Senator Roxas in a separate Dec. 20, 2007 press statement. Noon, the people deserve a break, pero hindi na ngayon?

VAT for debt servicing

Indeed, the points Roxas had raised against the continued collection of VAT amid soaring oil prices remain as valid as ever. His arguments, in fact, could very well answer the Aquino administration’s excuses to justify the VAT on oil today. For instance, while revenues have increased because of the oil VAT, social services continued to be marginalized in terms of government spending. Most of the revenues are being siphoned off by debt servicing. When Roxas was raising the issue of oil VAT in 2008, social services comprised less than 21% of total public expenditures while the total debt burden (interest payments and principal amortization) accounted for more than 34 percent. In 2011, preliminary data show that social services are still marginalized at less than 23% of public expenditures while the debt burden continued to hold the lion’s share with more than 31 percent. As Roxas said, “Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno”. Why should we allow the Aquino administration to be the sole arbiter on how these resources should be used?

Tax leakage

Roxas’s point on the tax leakage, meanwhile, remains a compelling argument against the VAT on oil. A 2010 study by the National Economic and Development Authority (NEDA) estimated that individual tax leakage could reach at least P35.69 billion a year from 2011 to 2016. From 2001 to 2005, the individual tax leakage was pegged at P35.74 billion a year, according to a 2006 study by the National Tax Research Commission (NTRC). Despite the hype of Daang Matuwid, the fact remains that bureaucratic corruption, inefficiency, and wastage continue to deprive government of potential revenues. Alas, like the Arroyo administration, the Aquino government is over-relying on the regressive and burdensome VAT instead of finding other ways to raise revenues such as addressing the perennial tax leakage.

“Perwisyo”

As mentioned, Roxas is now dismissing the very same arguments he once espoused against the oil VAT. For him, protest actions against the VAT and deregulation – issues he used to consider as legitimate concerns that government must address – are “perwisyo” or nuisance. Of course, only the naïve will be surprised by such turnaround of a traditional politician. Roxas obviously just rode on the very popular anti-VAT sentiment when he was still eyeing the presidency. (He eventually gave way to Aquino and ran for the vice presidency but lost to Makati Mayor Jejomar Binay in the 2010 elections.) But now that he is part of the incumbent administration as a Cabinet official, the oil VAT has suddenly become indispensable.

Thus, from the consumer advocate Mr. Palengke, Roxas has now transformed into the VAT apologist Mr. Perwisyo.

Illusion of change

Finally, let me share another quotable quote:

“Napakahalaga ang VAT… Ito ang sagot sa mga problemang namana natin… Kung aalisin ang VAT, hihina ang kumpyansa ng negosyo, lalong tataas ang interes, lalong bababa ang piso, lalong mamahal ang bilihin… Kapag ibinasura ang VAT… ang mas makikinabang ay ang mga may kaya…”

That’s not President Aquino or one of Malacañang’s mouthpieces speaking, although the tune is very familiar to the one being chorused by administration officials. It was Mrs. Gloria Arroyo in her speech during her State of the Nation Address (SONA) on Jul. 28, 2008. Arroyo was responding to Roxas and many others who were demanding that the oil VAT be removed or reduced and that pump prices, which then were reaching historic highs, be controlled.

Tapos na ang pamumunong manhid sa daing ng taumbayan? Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion. #

More Filipinos think Aquino not addressing oil overpricing

"Heartless" oil firms hit for Valentine's Day price hikes

The latest survey of the Social Weather Stations (SWS) shows that while the Aquino administration continues to enjoy high public satisfaction ratings, more Filipinos are dissatisfied with government response on the issue of oil prices. According to the SWS’s Dec. 3-7, 2011 survey, published yesterday (Feb. 13) by the BusinessWorld, the Aquino administration maintained a high 56% net public satisfaction on its general performance.

But the administration also posted a negative 3% on its performance on the specific issue of “Ensuring that oil firms don’t take advantage of oil prices”. The negative 3% is 7 percentage points lower than the already low 4% that it recorded in SWS’s previous survey in September 2011. Furthermore, the issue of oil is also just one of two among the 19 specific performance indicators included in the SWS survey wherein the Aquino administration registered a negative net satisfaction rating. The other is “Resolving the Maguindanao massacre case with justice” wherein government recorded a negative 18 percent.

(Download the complete results of the SWS survey here)

The survey results came out amid fresh rounds of oil price hikes and widespread public perception that oil companies are overpricing their products and accumulating huge amounts of profits at the people’s expense. The SWS findings clearly indicate that the public is not buying the Aquino administration’s response to the problem of high oil prices and overpricing charges against the oil firms. This includes the Pantawid Pasada program and the establishment of a so-called independent panel to review “the books of oil companies to ensure transparency in fuel pricing”.

The adverse public opinion against the profit-greedy oil companies and lack of government action against their abuses should compel policy makers to initiate reforms in the downstream oil industry. Unfortunately, it is obvious that the people could not expect President Aquino to instigate this policy shift. Aquino has shown unwillingness to heed the demand to repeal the Oil Deregulation Law (ODL) or Republic Act (RA) 8479 and establish a regime of effective state regulation to “ensure that oil firms don’t take advantage of oil prices”. Aquino has also rejected calls for not just the scrapping of the 12% value-added tax (VAT) on petroleum products but even its suspension to at least mitigate the oil price hikes.

But fortunately, some lawmakers have taken notice of the perennial problem of high, escalating, and questionable oil prices and made proposals to look into the ODL and the oil VAT. At the House of Representatives (HoR), for instance, aside from the representatives of progressive partylist groups, legislators from mainstream political parties as well as from moderate partylist groups have also filed bills ranging from amendments of to outright repeal of RA 8479 and suspension or repeal of the VAT on oil.

A quick look at the webpage of the HoR’s committee on energy shows at least five (5) bills proposing to repeal RA 8479 and at least two (2) bills and one (1) resolution proposing review and amendments. On top of these, there are also at least five (5) resolutions calling for a probe on oil pricing as well as one (1) resolution seeking emergency powers for the President to address the oil crisis. Aside from proposals on what to do with RA 8479, at least three (3) congressmen have also filed bills removing or at least suspending the VAT on petroleum products. All in all, there are currently 17 bills and resolutions filed in the 15^th Congress of the HoR that aim to reduce and/or control high and escalating oil prices. Meanwhile, at the Senate, at least three (3) bills have been filed that propose to amend RA 8479; institute a system of fair fuel pricing; and impose a cap on the profits of the oil companies.

The following are the bills and resolutions filed at the energy committees of the HoR and Senate on the issue of ODL and oil prices as well as proposals to remove or suspend the VAT on oil filed at the lower chamber’s committee on ways and means:

• House Bill (HB) 4355 – An act regulating the downstream oil industry and repealing RA 8479 (filed by Rep. Teddy Casiño, Bayan Muna) (Download here)
• HB 4317 – An act repealing RA 8479 (Rep. Rafael Mariano, Anakpawis)
• HB 2569 – An act regulating the oil industry, establishing the oil price stabilization fund, and repealing RA 8479 (Rep. Rufus Rodriguez, Partido ng Masang Pilipino or PMP) (Download here)
• HB 5295 – An act regulating the oil industry thereby repealing RA 8479 (Rep. Winnie Castelo, Liberal Party or LP)
• HB 00347 – An act regulating the downstream oil industry (Rep. Danilo Suarez, Lakas-Kampi) (Download here)
• HB 3267 – An act amending RA 8479 (Rep. JV Ejercito, PMP) (Download here)
• HB 4893 – An act to ensure transparency in pricing, amending RA 8479 (Rep. Romeo Acop, Nationalist People’s Coalition or NPC)
• House Resolution(HR) 00672 – A resolution directing the energy committee persistent oil shortage and recent spate of oil price hikes (Rep. Ben Evardone, LP)
• HR 00880 – Resolution directing the energy committee to investigate the price monitoring and regulatory system instituted by the DOE in the light of overpricing allegations (Rep. Luz Ilagan, Gabriela Women’s Party or GWP)
• HR 01027 – A resolution authorizing President Aquino to exercise emergency powers to address a possible oil crisis in the country (Rep. Teodorico Haresco Jr., Kasangga)
• HR 01170 – Resolution directing the energy committee to investigate unusually high oil prices in Negros Occidental and other areas outside Metro Manila (Rep. Teddy Casiño, Bayan Muna)
• HR 01310 – A resolution directing the energy committee to investigate high oil prices in Bacolod City and Negros Occidental (Rep. Roilo Golez, LP)
• HR 01464 – A resolution directing the energy committee to investigate DOE’s decision of clearing oil firms of price-fixing allegations (Rep. Rufus Rodriguez, PMP)
• HR 01627 – Resolution urging the HoR to review the ODL for possible amendments (Rep. Mitos Magsaysay, Lakas-Kampi)
• HB 02806 – An act suspending the VAT on oil (Rep. Rufus Rodriguez, PMP) (Download here)
• HB 04554 – An act exempting petroleum products from the VAT (Rep. Ma. Theresa Bonoan-David, Lakas-Kampi)
• HB 2719 – An act exempting petroleum products from the VAT (Rep. Teddy Casiño, Bayan Muna) (Download here)
• Senate Bill (SB) 1828 – Fuel pricing fairness act (Sen. Miriam Defensor-Santiago, People’s Reform Party or PRP) (Download here)
• SB 754 – An act amending RA 8479 (Sen. Jinggoy Estrada, PMP) (Download here)
• SB 2529 – Imposing a 12% cap of paid-up capital on the maximum allowable profits of oil companies (Sen. Antonio Trillanes IV, Indpendent)

There is no shortage of proposals on what to do with the problem of high and soaring oil prices and the abuses that oil companies commit. The public, meanwhile, is deeply discontented with what the Aquino administration has been doing (or not doing) to address the issue. The conditions are favorable to aggressively push for the proposals pending in Congress against the ODL and the oil VAT and compel the Aquino administration to support these initiatives or be further exposed as anti-people and pro-oil cartel. #

Oil firms, government earned P75 B in extra profits, VAT from overpriced diesel, unleaded gasoline

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing. (Photo by Nino Jesus Orbeta)

Transport groups, led by the progressive Pinagkaisang Samahan ng mga Tsuper at Opereytor Nationwide (PISTON), are staging a transport strike today (Sep. 19) in selected routes in Metro Manila as well as in various regions around the country. PISTON and its allies are pushing through with the strike and people’s protest despite the last-minute turnaround of other transport groups following their dialog with President Aquino last week.

Aquino, who promised to be the total opposite of Mrs. Gloria Arroyo, is employing the same tactic of his predecessor when faced with the threat of a transport strike – intimidate the jeepney operators with a cancellation of their franchise. But PISTON members are unfazed and they have every right and reason to go on with the strike even after Aquino ordered a review of the Oil Deregulation Law. The strike should send a strong message to Aquino and the oil companies that the grave abuse they inflict on the public transport sector and the people must stop.

Overpriced oil

Unabated oil price hikes since the start of year have already eroded the daily income of jeepney drivers by about P158 (based on the P5.25-total diesel price hike since January and the 30-liter a day average consumption of a jeepney driver). This is reason compelling enough for drivers to strike. But worse, the increases are unjustified despite the repeated claims of the oil firms, echoed by Energy officials, that they are simply reflecting the movement in global prices and foreign exchange (forex).

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing, or imposing domestic pump price adjustments that are much higher than what global prices and forex warrant. It must be pointed out though that global oil prices are already artificially high due to monopoly pricing and speculation. But local overpricing certainly worsens the impact of exorbitant global prices on the people.

Allegations of overpricing come not only from activists. Senator Ralph Recto, when he was still the Director General of the National Economic and Development Authority (NEDA), for instance, accused the oil firms of overpricing the public by P8 per liter. Our own estimate is that diesel is overpriced by about P7.60 per liter and unleaded gasoline by around P9.85. These figures represent accumulated monthly overpricing from January 2008 to August 2011.

The process detailing how we arrived at these estimates is discussed here.

Extra profits

By selling overpriced diesel and unleaded gasoline, the oil companies raked a total estimated extra profits (on top of their regular profits) of P66.19 billion from January 2008 to August 2011. Meanwhile, the government also has its share of the loot through the 12% value-added tax (VAT) imposed on overpriced diesel and unleaded gasoline to the tune of P9.03 billion. Thus, a total of P75.23 billion has been over-collected from jeepney drivers and other consumers since 2008. Of this amount, P45.05 billion came from diesel and P30.18 billion from unleaded gasoline.

The estimates were derived from multiplying the estimated annual overpricing in diesel and unleaded by their respective demand from 2008 to 2011. For instance, from January to August 2011, the accumulated overpricing for diesel is 88 centavos per liter. Using 2010 daily demand figures for diesel (2011 data are not yet available) of 19.63 million liters multiplied by 243 days (January to August), the estimated extra profits and VAT collections from overpriced diesel is P4.19 billion. 12% of this amount represents government’s VAT collections and the remainder goes to the oil companies. Using this same process, we estimated the extra profits and VAT revenues from overpriced diesel and unleaded gasoline in 2008, 2009, and 2010.

Furthermore, using the annual distribution of the local market per oil company, we can also estimate how much extra profits due to overpricing are collected by each of the Big Three. Of the P75.23 billion, P26.75 billion went to Petron Corporation; Pilipinas Shell, P19.85 billion; Chevron Philippines, P8.82 billion; and the rest of the oil players, P10.78 billion. The remainder, as mentioned, went to the government as additional VAT revenues.

You may access the Excel files of these computations here.

Join the strike

If you think that these figures are scandalously high, they are actually just peanuts compared to the billions if not trillions of dollars that the investment banks and the global oil giants, who supply the country’s petroleum needs, pocket in superprofits from monopoly pricing and speculation.

You may download a PowerPoint presentation on the global oil industry here.

Direkta at buong-buong pinapasan ng mamamayang Pilipino and lahat ng pang-aabusong ito dahil sa Oil Deregulation Law. At kasabwat pa ang gobyerno sa pang-aabuso sa pamamagitan ng VAT.

Support the striking jeepney drivers and operators. Join the transport strike and people’s protest today. #

SONA 2011: Making sense of Aquino’s facts and figures (part 2)

Aquino missed in his SONA the facts and figures that matter to the people (Photo from pinoypower.net)

Continued from part 1

Aquino also claimed that in his first year as President, the Philippines got upgraded four times by credit rating agencies. Compare this, said Aquino, to the lone credit upgrade and six downgrades the country had in the nine and a half years of the Arroyo administration. A high credit rating means lower interest payments. According to Aquino, the country spent P23 billion less in interest payments from January to April 2011 compared to the same period last year. This amount can supposedly already cover the 2.3 million families in target beneficiaries of the CCT program until the end of the year.

Debt servicing

A credit rating is simply the measure of the credit worthiness of government. Credit worthiness, meanwhile, pertains to the ability of government to repay its debt obligations. A high or favorable credit rating indicates that there is less or no risk of defaulting on our loans. Thus, creditors are more willing to lend with lower interest rates and therefore “less” debt burden for the borrower.

But the credit rating upgrades came at a high cost for the people. To obtain the upgrades, the Aquino administration ensured that debt obligations are being paid dutifully and at the same time resorted to massive under-spending. The result is that an ever increasing portion of spending by the national government went to debt servicing. Since Aquino became President, total debt servicing has already reached P668.65 billion (from July 2010 to May 2011). Until April this year, 49.3 percent of what the Aquino administration has spent went to debt servicing.

Worse than Arroyo

Compare these figures to those under Arroyo, who has been criticized as a heavy borrower and payer. Monthly debt servicing during the Arroyo administration was P48.18 billion while in the first 11 months of the Aquino presidency, it went up to P60.79 billion.  As a percentage of total government spending (including principal payments), the average during the Arroyo administration was 41.5 percent while under Aquino, it has increased to 49.3 percent (until April 2011). (See Table)

Despite the bigger debt servicing, the total outstanding debt of government (including contingent debt) still rose from P5.19 trillion in June 2010 to P5.23 trillion as of April 2011. The P40-billion rise in government debt includes $400 million (about P18 billion) in loans from the Asian Development Bank (ADB) approved last September 2010 to help bankroll the expanded CCT program. This means that the P23 billion mentioned by Aquino as savings from lower interest payments will just be used to pay for the rising debt obligations of government, including those incurred for the CCT.

Fiscal deficit

The credit rating upgrades were also achieved due to the improvement in the national budget deficit, another indicator closely watched to determine a country’s creditworthiness. From an all-time high (in absolute terms) of P314.5 billion in deficit in 2010, the Aquino administration has been able to substantially reduce the shortfall so far this year. From January to May 2011, the fiscal deficit was pegged at just P9.54 billion or 94.1 percent below the deficit during the same period in 2010. It is also way below the programmed deficit of P152.13 billion for the first half of the year.

This lower deficit was made possible by higher revenues and lower spending during the period. As compared to the first five months of 2010, revenues are higher by P81.5 billion while spending is down by P71.08 billion. Furthermore, monthly collections are more than P1.89 billion higher than expected while monthly expenditures are almost P21.55 billion lower than programmed.

At the people’s expense

But the improved fiscal situation was achieved at the expense of the people who are being deprived of social services as government under-spent and much of what it spent went to debt servicing. At the same time, the people are being squeezed dry with burdensome taxes to raise revenues.

To keep credit rating agencies and creditors impressed, Aquino rejected the growing public clamor to scrap or at least suspend the 12 percent value-added tax (VAT) on oil amid soaring pump prices. According to Aquino, “suspending the VAT might trigger a credit downgrade because credit rating agencies would likely deem such a move as ‘fiscally imprudent’.”

The oil VAT has become one of the most important sources of revenues for government since Arroyo introduced it in 2005. But it is also the most oppressive. Revenues from the oil VAT rise dramatically as prices of petroleum products increase. Due to higher oil prices this year, for instance, the Department of Finance (DOF) expects government to earn an additional P18 billion in revenues. From an original forecast of P52 billion in oil VAT earnings based on a global crude price of $80 per barrel, the DOF revised its projection to P70 billion based on $110 per barrel.

High pump prices made a significant contribution to higher tax collections this year. In the first two months of 2011, oil VAT revenues increased by P1.2 billion because of the oil price hikes. Aside from the 12 percent VAT, gasoline products are also charged with excise tax, which generated P4.03 billion for government from January to May this year – P389 million higher than during the same period in 2010.

Facts & figures that matter

Meanwhile, facts and figures that truly matter to the people have been ignored in Aquino’s SONA – P125 or the amount of legislated minimum wage hike workers have long been demanding to help them cope with ever rising cost of living; 6,453 hectares or the size of Hacienda Luisita lands that should have long been owned and controlled by farmers and farm workers; 556,526 or the number of families living in informal settlements in Metro Manila and face the threat of forced eviction; 27 or the number of times that diesel prices have gone up since Aquino became President; and 48 or the number of victims of extrajudicial killings in his first year as Chief Executive, among others.

By using numbers, the President hoped to be objective in presenting his administration’s supposed achievements during the SONA. But he ended up ignorant of the numbers that truly matter. (End)

Fuel stockpile plan boosts oil regulation argument

The Aquino administration faces growing peoples protests against the Oil Deregulation Law and the 12% oil VAT as fuel prices continue to escalate

On Tuesday (Apr. 19), Shell implemented another round of oil price hikes that increased the pump price of gasoline by 60 centavos per liter and diesel by 25 centavos. The kalbaryo (suffering) of the people does not seem to end. Starting Wednesday (Apr. 20), households should expect to pay P11 more for an 11-kilogram LPG tank, according to the LPG Marketers’ Association (LPGMA).

Meanwhile, reeling from growing criticisms that his administration is not doing enough to address the issue of high and escalating oil prices, President Benigno S. Aquino III announced last week the government’s plan to stockpile fuel. Aquino ordered the Philippine National Oil Co. – Exploration Corp. (PNOC-EC) to build up a strategic diesel reserve with the first shipment of 50 million liters expected to arrive next month.

To be sure, stockpiling still does not address the more urgent problem of unabated oil price hikes and exorbitant pump prices. But it does provide a glimpse of the possibilities that a fully regulated oil industry can give to the consumers and the economy. The PNOC-EC, for instance, expects to get a discount from the estimated P2.1-billion cost of its first shipment since it is buying in bulk. This will allow the government to sell its diesel at a lower price than the prevailing pump price being offered by the oil companies. The discount can be as much as P3 a liter based on PNOC-EC’s reckoning.

Imagine if the PNOC-EC is the exclusive importer of oil under a system of centralized procurement. The oil companies will have to buy from the government and they have to sell it a price based on the PNOC-EC’s cost of importation, which is cheaper. The government can also further bring down the cost of importation by exploring bilateral agreements with oil exporting governments such as engaging in commodity swaps or using the local currency to pay for oil imports thus eliminating the impact of foreign exchange fluctuations on the pump price. In addition, the government can easily determine if the oil firms are profiteering or selling at a price that is outrageously higher than the cost of buying from the PNOC-EC.

Unfortunately, this policy option is not available at present because of Republic Act (RA) 8479 or the Oil Deregulation Law. The PNOC-EC clarified that it does not intend to compete with the oil companies. The strategic oil reserve, according to the President, will only be utilized “in times of extraordinary need”. But for a backward country where wages are depressed and unemployment and poverty are chronic, for a country that is too dependent on a global oil market where monopoly and speculative pricing reign, the times of extraordinary need are ever-present. Petroleum is too strategic a commodity to be entrusted in the hands of profit-hungry oil companies.

What will replace RA 8479? We have long been pushing for a piece of legislation that will regulate the downstream oil industry in the Philippines. At the current Congress, that is House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. In 2005, independent think tank IBON Foundation also released a policy paper detailing how a regulated oil industry can be implemented. We do have concrete and doable proposals to bring down the cost of oil and ensure the country’s energy security.

More on the Pantawid Pasada

While fuel costs continue to escalate, the Department of Energy (DOE) is scrambling to implement President Aquino’s Executive Order (EO) 32 or the much publicized P450-million Pantawid Pasada program, hoping to mitigate the impact of the oil price hikes. I have talked to Director Zenaida Monsada of the DOE’s Oil Industry Management Bureau (OIMB) last week. She admitted that implementing the Pantawid Pasada has been a very difficult task. They have to verify that each of the 214,596 jeepney units is first, registered at the Land Transportation Office (LTO) and second, has a valid franchise from the Land Transportation Franchising and Regulatory Board (LTFRB). As for the tricycle units, the verification of almost one million Pantawid Pasada beneficiaries has been delegated to the Department of Interior and Local Government (DILG).

Once the complicated process of identifying the units qualified for the program, the next tricky job for the DOE is ensuring that the smart cards will actually be given to the drivers. I asked Monsada how they plan to do this considering that they identified the beneficiaries based on the franchisee or operator. Monsada said that the operators have to claim the cards with their drivers. But the franchise holder can bring any one with a driver’s license, I said. Monsada replied that they will coordinate with the transport groups to ensure that the drivers will get their smart cards. What will happen to the smart cards after the actual distribution to the drivers is uncertain because the DOE has no mechanism to monitor. But certainly, the effective control will be in the hands of the franchise holders since that’s how the Pantawid Pasada has been designed.

In a previous post, I argued that even as a form of economic relief, the Pantawid Pasada is grossly insufficient. With the recent round of increases in pump prices, the already scant amount that jeepney and tricycle drivers will get from the Pantawid Pasada by next month has been eroded again. Since the fuel subsidy program was announced by Malacañang last March 31, the pump price of diesel has already jumped by P1.75 per liter and gasoline, by P2.35. The P35 per day in diesel subsidy that jeepney drivers will get under the Pantawid Pasada has already been eaten up by the huge P52.50-increase in their daily fuel cost (based on their average daily consumption of 30 liters of diesel) in the past three weeks. Similarly, tricycle drivers saw their daily fuel cost jump by P9.40 a liter (based on their average daily consumption of 4 liters of gasoline), or almost double the P5-subsidy that they will get from the government. There is one more week before the targeted May 2 distribution of the Pantawid Pasada smart cards and the public transport sector may have to endure another round of oil price hikes before they can avail of Aquino’s fuel subsidy.

What is the better and more effective form of relief from the spate of oil price hikes? In terms of amount of price reduction and scope of beneficiaries, not to mention how very easily it can be implemented, the cancellation of the 12 percent value-added tax (VAT) on oil is the only relief that can really make a difference. (Read more here and here)

Noynoy’s fuel subsidy: Why the Pantawid Pasada is not enough even as pantawid

As a program for immediate relief from the impact of high oil prices, the Pantawid Pasada is not even enough (Photo from http://www.metropolitanmanila.com)

(This article was first published by the Philippine Online Chronicles)

Updates: Malacañang announced that starting April 11, jeepney and tricycle drivers can avail of the fuel subsidy smart cards. (Read here) However, it later clarified that what authorities have started is the processing of the applications for the smart cards and not the actual distribution which will start, as earlier announced, on May 1 or 2. (Read here) Meanwhile, the price of gasoline and diesel has gone up again by P1.50 per liter (Read here), increasing the daily fuel cost of jeepney drivers by P45 and thus wiping out the P35 daily fuel subsidy even before it can be implemented.

On the heels of the first major protest on the issue of skyrocketing oil prices under the Aquino administration, Malacañang announced that the President has approved a P500-million fuel subsidy. According to President Benigno S. Aquino III, the money will come from “savings of government due to increased revenues” and will subsidize a portion of fuel consumed by public utility vehicles (PUVs) except buses. The amount was reduced to P450 million when the official directive was finally released through Executive Order (EO) 32 one week since its approval was announced by the Chief Executive.

The government first announced that it is drafting such a proposal four days before the transport caravan and protest called by people’s organizations last March 31. The initial disclosure was made by Secretary Ricky Carandang of the Presidential Communications Development and Strategic Planning Office in an obvious attempt to dull public support to the protest, which also included transport strikes in various parts of the country. Apparently maximizing the PR value it can squeeze from the fuel subsidy, the Department of Energy (DOE) said that the smart cards containing the assistance will be given to the drivers on Labor Day, May 1.

But Aquino’s response to the people’s protest is a futile effort to calm the restive public over the weekly oil price hikes. First, it does not answer the basic issue of unreasonable increases in pump prices allowed by the Oil Deregulation Law and made even more oppressive by the government’s continued collection of the 12 percent value-added tax (VAT) on petroleum and the oil firms’ unabated profiteering. Compared to what the Aquino administration is earning from the oil VAT and to the profits being squeezed by the oil companies from motorists and consumers, the P450 million to subsidize public transport are crumbs, to say the least.

Second, as a program for immediate relief from the impact of high oil prices, the fuel subsidy is not even enough. It covers only a certain portion of the population (jeepney and tricycle drivers) and excluded other vulnerable (and bigger) sectors that are also reeling from the impact of escalating fuel prices like the small fishers and farmers who use gasoline in their production, the poor households that use LPG and kerosene, etc . Moreover, EO 32’s limited coverage is further hampered by the very measly amount that each jeepney and tricycle driver will get for a limited duration, an amount that will even be eroded in the coming weeks as oil prices continue to climb.

Limited coverage

EO 32 established the Public Transport Assistance Program (PTAP) or the so-called “Pantawid Pasada” to provide targeted relief to the jeepney and tricycle drivers in the form of partial subsidy to their fuel consumption.  The PTAP, for Malacañang, is “the most equitable and efficient form of intervention” to protect the vulnerable sectors. Smart cards will be issued to qualified beneficiaries to ensure the “integrity of the disbursements” that shall be funded by the Special Account in the General Fund (SAGF) of the Department of Energy (DOE). The SAGF includes proceeds from the Malampaya oil field in Palawan.

While the Inter-Agency Energy Contingency Committee (IECC), a body formed by Aquino last month to prepare precautionary measures amid the rising tension in the oil-rich Middle East and North Africa region, recognized that the “public transport sector has been the hardest hit by the oil price hikes” since oil is one of its major operating costs, EO 32 does not cover the entire public transport sector. Energy Secretary Jose Rene D. Almendras has earlier said that buses were excluded from the fuel subsidy because they have already been granted a provisional fare hike of P1.

Beneficiaries, in the case of jeepney drivers, shall be identified by the Land Transportation and Franchising Regulatory Board (LTFRB) on a per franchisee basis and on the number of franchised units. This means that jeepney drivers and operators must first prove that their units are covered by a legitimate franchise to qualify for the fuel subsidy. This requirement will unduly prolong and complicate the process of accessing the subsidy and in the end may only discourage the drivers from availing of the assistance. It will also exclude a significant portion of drivers that are not covered by a valid jeepney franchise. According to the DOE, there are 214,596 jeepney units with valid franchises nationwide that will be covered by the Pantawid Pasada. However, estimates say that there are more than 230,000 jeepney units nationwide, which means that around 15,000 units are not covered by a franchise.

Such requirement misses the point in providing immediate economic relief. It’s like saying that only documented overseas Filipino workers (OFWs) will be evacuated by the government from Libya and illegal migrants should fend for themselves amid the crisis. Providing economic relief for all drivers is not promoting or tolerating so-called “colorum” (without franchise) jeepneys. That is the job of transportation officials to implement. But it’s a different matter if the government will use an economic relief program to punish colorum jeepneys and their drivers.  All jeepney drivers and their families are hard hit by oil price hikes whether they have a valid franchise or not.

For tricycle drivers, the Department of Interior and Local Government (DILG) and the local government units (LGUs) will coordinate to identify beneficiaries, according to EO 32. It is unclear how the fuel subsidy will be provided to almost 1 million tricycle units nationwide.

Measly amount

Meanwhile, the EO did not say how much the subsidy will be. Earlier reports quoted Almendras as saying that each smart card will have a value of P1,500 while other reports said that the subsidy was P2 or 3 a liter. When the amount was finalized, it turned out that each jeepney unit covered by a legitimate franchise will get only P1,050 per month or P35 per day, an amount that is not even enough to buy a liter of diesel. A jeepney unit usually consumes 30 liters in one day. Given the common price of diesel of P47.10 per liter in Metro Manila as monitored by the DOE, the fuel subsidy constitutes a measly 2.5 percent of the daily cost of diesel being shouldered by a jeepney driver.

Tricycle drivers, on the other hand, will receive P150 per month, or P5 per day.  The subsidy could go up if the LGUs can raise counterpart funds, Almendras said. This discriminates against tricycle drivers who are under poorer LGUs that could not raise resources. Like in the case of jeepney drivers, the P5 per day-assistance is also a very small amount relative to what tricycle drivers spend on gasoline which is around P54.85 a liter in Metro Manila (common price). Considering that they use 4 liters a day on the average, the Pantawid Pasada for tricycle drivers is thus equivalent to just 2.3 percent of their daily fuel cost.

The already insignificant fuel subsidy is actually even much smaller because it is allocated on a per unit basis and not per driver. In many cases, one jeepney or tricycle unit has two or even three drivers who take turns during the week. Thus, in effect, two to three drivers will share the P1,050 or P150 monthly fuel subsidy that will be provided by the Aquino government.

In addition, by the time that the fuel subsidy becomes available on May 1, oil prices have already climbed higher thereby further eroding whatever impact the Pantawid Pasada has on the cost of fuel.  On the average, the pump price of diesel has been increasing by 61 centavos per liter every week this year and gasoline by more than 45 centavos. If this trend continues, the price of diesel would have already gone up by almost P2 a liter and gasoline by almost P1.50 by the time jeepney and tricycle drivers get their Pantawid Pasada smart cards on Labor Day.

And by the way, because of the value added tax (VAT) imposed on petroleum products, 12 percent of the Pantawid Pasada will actually return to the government.

Overpricing amid speculative oil price spikes, not supply, is more urgent concern

(This article was first published by the Philippine Online Chronicles)

On Tuesday (Mar. 8), oil firms implemented the eighth round of oil price hikes this year and the third round in one week. All in all, the pump price of diesel has already increased by P6.75 per liter since January; kerosene, P6.50; and gasoline, P6. The retail price of liquefied petroleum gas (LPG), on the other hand, posted a net decrease of P1.90 per kilogram (kg). But recent trends show an uptrend in the LPG international contract price, consequently hiking the local retail price by P2.50 per kg since March 1. (See Table 1)

Alarming pace

The pace with which pump prices are increasing is very alarming. This year, the price of diesel at the pump is rising by almost 68 centavos a liter per week and those of gasoline and kerosene by 65 centavos and 60 centavos, respectively. Just to give you an idea how bad the situation is, note that during the 2008 oil price crisis, the retail price rose by just 57 centavos a liter per week. This, of course, is just an average. At its peak (June and July), the 2008 crisis jacked up local pump prices by P1.42 a liter per week. Unfortunately, we all have no idea if the current surge in prices has already peaked or at least nearing the summit. As we speak, tension continues to build up in the Middle East, with protests now spreading to Saudi Arabia. Meanwhile, the US is planning to intervene militarily in the Libyan civil war. These fuel more speculations, driving wild spikes in prices like in 2008. But unlike in 2008, the oil rich regions are today embroiled in serious volatility that may actually disrupt supply which means more bad news for importing countries like ours.

No shortage

Certainly, there is no actual shortage yet with most members of the Organization of Petroleum Exporting Countries (OPEC) pumping more oil than their individual quotas even before the unrest in Libya. The spare capacity of OPEC is pegged by the International Energy Agency (IEA) at 4.9 million barrels a day or about three times Libya’s output. Spare capacity means capacity levels that can be achieved in 30 days and sustained for 90 days. Oil inventories of the world’s largest economies under the Organization for Economic Cooperation and Development (OECD) also exceed the normal 52-54 days with 57.5 days in December. Nevertheless, taking early measures to prepare for a possible supply disruption is a prudent decision on the part of President Aquino who created an Inter-Agency Contingency Committee (IACC). The Department of Energy (DOE) has also imposed a minimum inventory of 30 days for refiners and 15 days for importers of finished products.

Real problem

However, the real problem right now is not supply but the skyrocketing costs of oil and its impact on the people, especially the poor. Although much of the increases in the global oil prices are speculative (there is no actual shortage, only fears of shortage), Filipino consumers bear the full brunt of soaring prices because of the Oil Deregulation Law or Republic Act (RA) 8479. Worse, oil companies have been taking advantage of the deregulated downstream oil industry to overprice their products. In a deregulated environment, oil firms simply “text” someone in the DOE that they are increasing prices, as a matter of FYI. This system obviously creates a lot of room for abuses. To illustrate, from 2008 to January this year, oil firms have implemented price hikes that were bigger than what changes in global prices and foreign exchange warrant. Similarly, they also implemented smaller rollbacks. The net result is an overpricing of around P7.50 per liter.

P7.50 per liter in overpricing

Thus, on top of the speculative increases, consumers also shoulder the cost of overpriced oil which is an enormous burden for ordinary folks. Consider, for instance, a lowly tsuper who uses 30 liters of diesel for his jeepney in a one day. Through overpricing, oil firms are robbing each of the more than 400,000 jeepney drivers nationwide and their families around P225 per day. About 8.6 million households that use LPG are being robbed of some P147.58 per month. More than 700,000 fishers, who are the poorest sector in this country (50% of them try to survive on just P41 a day), shell out P75 per fishing trip to cover the cost of overpriced gasoline. The poorest Filipino households use kerosene for lighting and cooking and even they are being squeezed dry by the oil companies. (See Table 2)

From the burden of these poor sectors and the rest of consumers, oil companies squeeze P369.65 million everyday in extra profits from overpricing. Of this amount, Petron accounts for P124.59 million, followed by Shell with P91.41 million; Chevron, P40.66 million; Total, P14.31 million; and other players, P54.32 million. Even the Aquino administration gets its share from the profiteering of the oil companies through the 12% value added tax (VAT) imposed on oil to the tune of P44.36 million daily. (See Chart)

Regulate prices now

The Aquino administration at first refused to engage the issue of skyrocketing prices, as it has done on the general increase in prices of basic goods and services. (Read “A regime of high prices: Aquino’s apathy towards the poor”). But as the oil price hikes rage on and escalating people’s protests over high prices loom, government is now at least showing a semblance of concern. The Department of Finance (DOF) is reportedly considering subsidizing oil products consumed by the poor and reducing the VAT on petroleum. These measures are apparently the most “drastic” proposals that government is ready to make.

While any measure that can immediately bring down the price of oil (especially the scrapping of the 12% oil VAT) to provide much needed relief is welcome, we need a truly drastic reform. Overpricing must be addressed because even during times of low prices, consumers are still being exploited by the oil companies. Of course, there is a task force composed of the DOE and the Department of Justice (DOJ) that the Oil Deregulation Law created to look into the abuses of the oil players. But in the 13 years that this task force has existed, not a single oil company has ever been penalized for overpricing. Not even when the Director General of the National Economic and Development Authority (NEDA) himself is saying that they are overpricing (remember now Sen. Ralph Recto’s allegation in 2009 that oil products were overpriced by P8 a liter?).

The excuse for this is simple. As argued by the late Angelo Reyes, who as the then DOE chief lambasted Recto’s claim, there is no such thing as overpricing or a standard formula under deregulation. Every price adjustment is justified as a business decision in the name of competition and driven by the world market. But we all know that this is hogwash. More than eight out of every 10 liters of oil sold in the domestic market are from just four companies (Petron, Shell, Chevron, and Total) with tight links to the global oil cartel. They set the price adjustment and everyone else just follows. Government should stop using the world market as an excuse for being helpless. Otherwise, there is no more need for a government. At the very minimum and as an immediate policy reform, we need to regulate the price adjustments through a system of credible, democratic, and transparent public hearing. Hindi pwedeng “text-text” lang ang oil price hikes. (end)

Toll hike, VAT, soaring utility rates in lieu of new taxes

SLEx toll will quadruple due to VAT and privatization of infrastructure development (Photo from ryucloud/photobucket.com)

President Noynoy Aquino has promised that his administration will try not to raise or impose new taxes to bridge the widening fiscal gap, which is expected to reach a record high P325 billion this year. But while not imposing new taxes (yet) to address its fiscal woes, the Aquino administration is still squeezing the people dry through unabated increases in prices and rates charged by privatized and deregulated utilities, and by getting the most out of the previous administration’s most onerous and anti-poor revenue-raising tool – the 12 percent value added tax (VAT).

By the way, did you know that the VAT, like privatization, was also a legacy of Noynoy’s late mother, President Cory Aquino? On July 25, 1987, Cory issued Executive Order (EO) No. 273, adopting the VAT. Cory issued the EO just before the 8^th Congress opened, thus preempting the legislature’s constitutional power to impose taxes. The move was a ploy to swiftly implement the International Monetary Fund’s (IMF) prescription to impose the VAT and ensure that the bankrupt Cory administration can raise revenues for continued debt servicing.

Controversial tax

Today, the ever controversial tax is again in the headlines following the insistence of Aquino’s Bureau of Internal Revenue (BIR) chief to impose the regressive VAT on toll. If Noynoy will not intervene and order the Department of Finance (DOF) and BIR to suspend its implementation, fees charged by toll operators around the country will go up starting Monday (August 16) as the cash-strapped Aquino administration collect from motorists the VAT on toll roads.

The table below summarizes the current rates and new rates to be charged (12 percent increase, representing the VAT) by major toll roads in Luzon, based on a notice released by the Toll Regulatory Board (TRB).

Meanwhile, those using the South Luzon Expressway (SLEx) will feel the double whammy of VAT and toll hike that will raise the toll charged by its private operator, the South Luzon Tollway Corp. (SLTC). Motorists using the SLEx will see their toll almost quadruple mainly because of the new rates approved by the TRB last May.

Ironically, the principal author of the 2005 VAT law Republic Act (RA) 9337, Senator Ralph Recto, is strongly opposing the move arguing that VAT should not be imposed on a government service. Recto, who belongs to Aquino’s Liberal Party (LP) and presently chairs the Senate ways and means committee, suffered the VAT backlash and lost his reelection bid in the 2007 midterm elections, which explains his stance on the VAT on toll. Aside from Recto, another LP member, Sen. Franklin Drilon is also questioning the BIR plan because it is supposedly imposing a tax on tax. Business groups, in particular those operating in Southern Tagalog’s industrial zones, on the other hand, have warned of commodity price hikes while transport groups plying the SLEx threatened to increase fares.

Aquino’s dilemma

While some prominent LP members are against it, the Aquino administration’s dilemma is that backing down on the BIR plan to collect the unpopular VAT on toll will further limit its already scant revenue sources, which have been perennially drained by trade liberalization, automatic debt servicing, promotion of foreign investment and export production, and onerous privatization contracts, on top of tax evasion, smuggling, and fat paychecks of high officials of the bureaucracy.

Given the persistent external pressure from the IMF for so-called fiscal consolidation and to hike the VAT rate to 15 percent, it is unlikely that Aquino’s economic team – led by ardent VAT champions and neoliberals DOF Secretary Cesar Purisima (who as Arroyo’s DOF chief helped design and lobbied for RA 9337) and Socioeconomic Planning Secretary Cayetano Paderanga (who was among the UP economists that pushed for VAT and VAT rate hike) – will advise Aquino to heed the public clamor and stop the VAT on toll. But if Aquino will push through with the VAT on toll, he risks suffering a major political blow very early in his term because of the measure’s unpopularity and severe impact on the people. Such setback can be further compounded in case the Supreme Court (SC) decides favorably on petitions filed against the VAT on toll amid growing public opposition.

Nonetheless, the pending toll hikes, whether implemented or not, further highlight the lack of real reforms that matter to the people under the Aquino administration. That Aquino is trying to widen the scope of the onerous and anti-poor VAT is proof that prospects of better and more decent living conditions for social sectors neglected by past regimes remain dim, if not dimmer.

VAT on privatized, deregulated utilities

And even if the VAT on toll is withdrawn, the continued implementation of neoliberal policies will still oppress the poor and impoverish more people. Note for instance, that in the case of SLEx, the VAT imposition is just a small portion of the enormous increase in toll that stems from infrastructure privatization, the same policy that Aquino highlighted in his State of the Nation Address (Sona). With Aquino’s promotion of so-called Public-Private Partnerships (PPPs), we expect more similar increases in the future as these are built-in mechanisms to make privatization attractive to potential investors. A case in point is the proposed MRT fare hike, which the Aquino administration is seeking in order to pay for the guaranteed debts and profits of private investors that took part in MRT’s development and ease government’s fiscal burden.

Indeed, indications show that privatization and deregulation will not only continue but will even expand under the new government. Just barely one and a half months into the much hyped Aquino administration, we have already seen oil prices and electricity rates go up. Players in the deregulated oil industry have recently raised the pump prices of diesel, kerosene and gasoline by 50 centavos to P1 per liter, with the Department of Energy (DOE), just like in the past, warning of more oil price hikes in the coming months. In addition, the Manila Electric Co. (Meralco) has again increased its generation charge by 44 centavos per kilowatt-hour (kWh). More nationwide increases in the privatized and deregulated power industry, based on petitions pending before the Energy Regulatory Commission (ERC), should be expected by hapless households.

In the context of its fiscal woes, the Aquino administration welcomes these increases despite their harsh effect on consumers as they mean more VAT collections for the government. In fact, oil and electricity are the two largest sources of VAT revenues, increasing in direct proportion with rising pump prices and monthly electricity bills. From November 2005 (when RA 9337 was implemented) to December 2009, the VAT burden from oil and power has reached P239.94 billion, or more than 65.3 percent of the total revenues (P367.28 billion) generated by RA 9337.

Similarly, higher toll means higher VAT collection for the government. Under the old SLEx fees, for example, government’s VAT revenues will only range from P2.64 to P7.80 per vehicle per trip. But under the new rates approved by the TRB, the VAT burden of SLEx users will quadruple to P10.2 to P30.6. Overall, taxpayers will shoulder a tax burden of more than P12 billion annually from the VAT on toll.

No new taxes? It does not make a difference amid rising rates and prices due to deregulation and privatization, and continued imposition and expanded coverage of the 12 percent VAT. And lest we forget, Aquino’s promise of no new taxes is highly conditional on the results of its anti-smuggling and tax evasion drive which means the worst is yet to come.