A Journalism student from the UP CMC sent me via email last June 26 (Thursday) three questions on the planned privatization of Petron and oil deregulation. I gave short and direct answers to her questions, not only because I wrote these answers in between various writing and editing chores but also because most of her questions can be readily answered by my previous writings on the topic. That I am sharing these answers with you now serves as a personal reminder that I should be writing about the issue of oil price hikes more often and not just rely on interviews from the media, students and other sectors.

A recent report from the Philippine Daily Inquirer said that the government has plans of selling its Petron shares, does this move have any impact on the current state of the oil market in the country? Would it be beneficial for the consumers in the long run?

The establishment of Petron in the 1970s, initially as a marketing arm of PNOC, was to check against the predatory pricing of transnational oil companies. The government’s decision to partially privatize Petron in the 1990s through IPO is based on a mistaken notion that laissez-faire economics will bring about lower prices and better services for the betterment of consumers, and was meant to prepare for the deregulation of the downstream oil industry, the first law of which was enacted in 1996. (For details and a more comprehensive answer to the question, kindly read my article in Filipino titled “Ang Petron, desperasyon at deregulasyon” at URL http://www.dannyarao.com/2003pw-july23.html.)

Would it be better for the government to just maintain (or increase) its shares in Petron to help control oil prices or at least provide some sort of control in the local market? In what way?

Yes, but the issue here is very fundamental: Should the deregulated environment in the downstream oil industry continue despite the runaway prices of petroleum products and the helplessness brought about by the goings-on in the international oil market, particularly among OPEC member-countries? Adherence to nationalization or state control means more leeway on the part of government to do something about increased prices of petroleum products, reminiscent of the decision of the Marcos administration to regulate the downstream oil industry in the 1970s. Unless deregulation is reversed, Petron (even in the unlikely scenario that it will revert to being 100% government-owned) will still blindly follow trends in the world market instead of making petroleum products accessible and affordable to the poor.

There are plans of exploring oil in the Sulu Sea, this project would be done in cooperation with the US company ExxonMobil, will this move help in reducing oil prices in the Philippines, since the oil source would be in our territory?

It’s like asking if Malampaya has had an impact in making petroleum products affordable and accessible to people. If at all, only Shell Exploration is making a killing in the exploration. Plans towards oil exploration should operate within the framework of nationalization, this time in the upstream oil industry. Oil prices, it must be remembered, will never be sensitive to the needs of the poor majority for as long as deregulation is in place. One basic question that traditional economists fail to answer is this: Why should the prices of petroleum products be subjected to market forces even if we acknowledge that such products are inherently “demand inelastic”? This is where the anti-people character of neoliberal economics can be better appreciated.