Deregulation is quite simple but the powers-that-be tend to provide complicated explanations in claiming that it should be given a chance to work despite what is happening in the world market. Indeed, a clear understanding of oil deregulation leads one to oppose it, especially at the onset of unabated oil price hikes and inconsequential rollbacks.

BY DANILO ARAÑA ARAO

Stripped of all the technical jargon, the deregulation that is characteristic of the downstream oil industry is very easy to understand.

In order for the economy to progress, there is a need to remove all barriers to free competition. The government should not directly compete with local and foreign investors, hence the need to sell to the private sector (i.e., “privatize”) government-owned and controlled corporations (GOCCs) like Petron which competes with private companies like Shell and Chevron.

Unlike in the past, the deregulated regime allows any industrialist to invest in the downstream oil industry. Data from the Department of Energy (DOE) show that there are 601 new industry players competing with the so-called Big Three – Petron, Shell and Chevron.

In removing the regulations that used to prevent free competition, government officials and neoliberal thinkers expect the empowerment of consumers. They argue that under a deregulated regime, consumers are “empowered” in the sense that they now have more choices. If in the past there were only three companies, there are now hundreds to choose from.

For those who believe in the principle of globalization (of which deregulation is one of the tenets, the other two being liberalization and privatization), the measurement of “consumer power” is defined along the lines of increased choices. (i.e., “If the consumer has the choice, the consumer has the power.”)

More companies mean “better and freer” competition which would then result in lower prices and better services for the consumers. The tendency of the capitalist, according to those who argue for deregulation, is to attract as many customers as possible in whatever ways necessary, like creative advertisements, substantial discounts and, of course, lower prices.

The deregulation of the downstream oil industry started in April 1996. The prices of gasoline and diesel then were P9.50 ($0.185 at the 1996 exchange rate of $1=P51.31) and P7.03 ($0.13) per liter, respectively. As a result of oil price hikes in the years that followed, gasoline and diesel reached more than P60 ($1.33 at the July 2008 exchange rate of $1=P44.956) and P50 ($1.11) per liter.

There have been rollbacks since August but these are said to be not enough based on the prices of Dubai crude and the peso-dollar exchange rate. The table below illustrates this point.

It is easy to argue that we currently live in an “abnormal” situation due to the continued increase in the price of crude in the world market. The weekly average Dubai crude, for example, reached its highest last July 4 at $137.27 per barrel. As of September 26, it is pegged at $96.68 per barrel.

However, one notices an even more abnormal increase in the pump price of diesel, widely consumed by the transport sector, relative to the increase in Dubai crude.

Twelve years have passed since the implementation of oil deregulation and the only positive effect it had was on the profits of oil companies and increased tax collection of the government, especially with the increase of the value-added tax from 10 percent to 12 percent and its expansion in 2005 to include petroleum products. For 2008, the Department of Finance expects a collection of P73.4 billion ($1,543,443,519 at the October 10, 2008 exchange rate of $1=P47.556) from the VAT on petroleum products.

Why did the expected lowering of prices of petroleum products not happen in a deregulated regime? Unlike others, petroleum products are said to be “demand inelastic.” This means that the demand for such products is not affected by fluctuations in prices because these are needed by the public.

The transport sector, for example, absolutely needs petroleum products to continue with its operations and it will always procure such products regardless of the price.

In my independent monitoring of the prices of petroleum products, what Petron, Shell and Chevron normally do is to take the lead in increasing prices and the industry players would follow afterwards. The different oil companies normally maintain only a price differential of P0.50 per liter.

Deregulation is quite simple but the powers-that-be tend to provide complicated explanations in claiming that it should be given a chance to work despite what is happening in the world market.

Indeed, a clear understanding of oil deregulation leads one to oppose it, especially at the onset of unabated oil price hikes and inconsequential rollbacks. (Bulatlat.com)

This is a shortened version of the paper presented by the author at the 30th anniversary lecture of IBON Foundation last October 7. His slide presentation (in PDF) may be retrieved from http://www.dannyarao.com/files/arao-downstream-oil-deregulation.pdf.

My first trip to Jakarta in July prompted me to write a column article for Pinoy Weekly titled “Jakarta sa aking utak” (loose translation: Jakarta in my mind). On the other hand, my second trip in August motivated me to repackage and slightly revise the paper I presented in Jakarta into a “Reporting the ASEAN” three-part series published by the weekly Bulatlat Online Magazine where I serve as a member of the Board of Editors.

Alexandra Klawitter of the German-based KLATEXT Consulting sent me some photographs after I requested my friends at the International Institute for Journalism (IIJ) of InWEnt-Germany (organizer of the two training) for a photo documentation of the August activity and a written evaluation of my “performance.”

How did they find me as a speaker? Let’s just say that they were satisfied enough to invite me again for another training scheduled in the next few months!

It’s not just the opportunity to travel again that I look forward to; it’s also reconnecting with friends and allies in the journalism profession and making new ones. While I am in a position to share whatever knowledge I have as a practicing journalist and a journalism educator, you should know I also learn a lot interacting with participants, most especially outside the session room.

In my two trips to Jakarta, I realized that, regardless of nationality, responsible journalists are often direct to the point, opinionated and brutally frank. The participants’ socio-political background may vary (quite expected given the diversity of cultures within ASEAN), but you could see their commitment to be responsible in their chosen profession, an indication that they all want to help change the ASEAN and their respective countries for the better.

Without much delay, here are some of the pictures sent by my friend Alexandra.

That’s me with Dr. Martin Löffelholz (Ilmenau University of Technology in Germany)
and Wuri Parmaitri (The ASEAN Secretariat in Indonesia) at a welcome dinner last August 25.

That’s me making my presentation on the state of the ASEAN press
and ASEAN as a news topic last August 26.
The lights at the Kutilang Room of Ambhara Hotel were not that bright,
hence the poor color quality.

Yes, I know. It’s seldom that I smile, but there is something in Jakarta that makes me do so.

I will be uploading more pictures, this time “unofficial,” in the days to come. Thank you for reading.

I would like to thank my friends at the International Institute for Journalism (IIJ) of InWEnt-Germany for allowing me to publish a slightly revised version of the paper I used in our two training courses last July and August in Jakarta, Indonesia.

For those who want to know the state of the ASEAN press and my thoughts on better ASEAN coverage, please read my three-part series with the common kicker Reporting the ASEAN:

• Repression of ASEAN Media Continues (first of three parts), URL http://bulatlat.com/2008/09/reporting-asean-repression-asean-media-continues
• No Qualitative Change in ASEAN Media Repression (second of three parts), URL http://bulatlat.com/2008/09/reporting-asean-no-qualitative-change-asean-media-repression
• ASEAN as a News Topic (last of three parts), URL http://bulatlat.com/2008/09/reporting-asean-asean-news-topic

If you want to know a participant’s thoughts about our recently held training course in Jakarta, please visit IIJ’s blog The Daily IIJ and read two posts titled “The ASEAN Media” and “On record: My InWEnt-ASEAN experience,” both written by Zamboanga Today Editor-in-Chief Frencie Carreon.

Your comments to my three-part series will be greatly appreciated. Thank you for reading.

One only needs to look at government data to see the basis for a substantial wage hike, and one only needs to do simple mathematical computations to prove the anti-poor character of the proposed 10-percent wage hike for government employees.

BY DANILO ARAÑA ARAO

Unlike in the past, the Macapagal-Arroyo administration and a segment of the business sector now support a wage hike for workers. They say that the current problem with rice supply (they are careful not to use the word “crisis”) warrant the provision of relief to the country’s labor force.

President Gloria Macapagal-Arroyo prefers another 10% across-the-board increase in the wages of government employees, similar to what happened in July 2007. Why are cause-oriented groups opposing this? Isn’t their objective to increase the wages of workers?

Analyzing the 1989 Salary Standardization Law’s (SSL) salary scale as of July 2001, the lowest-paid government employee covered by SSL had a basic monthly salary of P5,082 or $121.26 (Salary Grade or SG 1, Step 1). A utility worker or street sweeper who belongs to SG 1-1 got a measly P508.20 ($12.13) monthly when the 10% wage hike was granted last year.

On the surface, there seems to be nothing wrong with getting a little more than P500 ($11.93) monthly as it is better than nothing. However, the injustice in this kind of wage increase becomes apparent as one computes how much a government official who belongs to a higher SG got as additional income.

The highest-paid government employee covered by SSL is Gloria Macapagal-Arroyo who, as the country’s President, belongs to SG 33. She used to get a monthly salary of P57,750 ($1,377.95). A 10-percent increase in 2007 currently means P5,775 ($137.80) more in her monthly salary.

If another 10-percent wage hike were granted to government employees, those belonging to SG 1-1 who currently receives P5,590.20 ($133.38) monthly stand to earn an additional P559.02 ($13.34) while Macapagal-Arroyo who earns P63,525 ($1,515.75) will get an additional P6,352.50 ($151.57) monthly. Where is the justice there?

A 10-percent wage hike is inherently discriminatory against those who are earning less and those who are earning more stand to benefit from it. The administration’s proposal for another 10-percent wage hike therefore creates a situation once more where a wage increase becomes anti-poor.

That cause-oriented groups and progressive labor organizations and unions are demanding an increase in salaries in absolute terms is meant to remove any form of discrimination in the workplace. Unlike a percentage increase, workers, regardless of their position, stand to get equal amounts.

The workers’ campaign for a P125 ($2.98) increase in the basic pay of private sector workers was launched on August 25, 1999, immediately followed by the government employees’ campaign for a P3,000 ($71.58) increase in their monthly salaries. According to the 2002 book “Manggagawa: Noon at Ngayon (Workers: Then and Now),” the daily cost of living for a family of six was then pegged at around P460 ($10.98).

Nine years later, government would most likely argue that the Regional Tripartite Wages and Productivity Boards (RTWPBs) established in 1989 have provided “substantial” increases, citing the case of Metro Manila-based workers in the private sector whose current salaries are now P164 ($3.91) higher compared to when they started their campaign for a P125 ($2.98) wage hike.

It should be stressed, however, that it was only in Wage Order (WO) No. 13 on August 28, 2007 that the P50 ($1.19) cost of living allowance (COLA) was integrated to the basic pay. Aside from the COLA’s integration, WO 13 only provided a P12-increase ($0.29) in the basic pay, increasing the minimum wage to P362 ($8.64), the highest in the country.

Metro Manila-based private sector workers are therefore enjoying a cumulative wage hike in the basic pay which is greater than what organized labor has been demanding since 1999 for only about eight months as of this writing.

The situation proves to be worse in other regions. Comparing the August 1999 and April 2008 minimum wage levels (non-agriculture), the RTWPBs provided a cumulative increase ranging from P37 or $0.88 (MIMAROPA) to P111.50 or $2.66 (Central Luzon). (See Table 1)

Analyzing the current data on family living wage (FLW), it becomes apparent that wages are not enough to provide for the needs of a family.

In a study by the National Wages and Productivity Commission (NWPC) titled “Development of Methodology for Estimating the Living Wage (2001),” living wage refers to “the amount of family income needed to provide for the family’s food and non-food expenditures with sufficient allowance for savings/investments for social security so as to enable the family to live and maintain a decent standard of human existence beyond mere subsistence level, taking into account all of the family’s physiological, social and other needs.” The current assumption is that a family has an average of six members and that two of its members (usually the parents) are earning.

The FLW show that it is practically impossible for two members earning only the minimum wage to provide for their family’s needs. The difference between the minimum wage and the family living wage, on a monthly basis, ranges from P6,638 or $158.39 (Eastern Visayas) to P20,826 or $496.92 (Autonomous Region in Muslim Mindanao or ARMM).

Incidentally, ARMM still holds the distinction of having the lowest minimum wage rate nationwide and the highest family living wage. Not surprisingly, ARMM is in a situation where all six family members have to work and earn the minimum wage to provide for the entire family’s needs.

No amount of government rhetoric can deny the kind of deprivation and injustice the workers are experiencing. That they need a substantial wage hike is already obvious, using government data no less.

The question at this point is if the government can muster enough political will to do what is right, at least this time. Bulatlat

Table 1: Minimum Wage Rates
August 1999 and April 2008
(highest nominal wage for non-agriculture, in pesos)

I was just interviewed a few minutes ago by a GMA 7 reporter who, in the course of her research on the topic, came across an article I wrote in January 2007.

The article is titled “The Logic Behind a Legislated Wage Hike” published in Bulatlat Online Magazine. The reporter asked questions regarding the points I raised in this article.

I also provided updates on my computations with regard to how a wage increase could affect cost of production, at least in the manufacturing sector. If you would read my article, you would notice that I only used 2006 data, hence the need for updates. True enough, the effect on the overall cost of production is lower now than my estimates two years ago.

Just out of curiosity, I searched “legislated wage hike” in Google and, to my surprise, my January 2007 article currently ranks fifth.

I don’t think that this is a reflection of lack of more current research on a very important issue. Then again, I consider this a wake-up call to write once more about wages, especially in the wake of the current rice crisis.

Update (April 17, 1:25 pm): That’s me being interviewed by 24 Oras (GMA 7) last night (April 16, around 6:40 pm). I don’t know if I deserve to be called “political analyst,” but I agreed to it when it was suggested by the reporter. If you want to view the entire news cast, kindly click the image above. Thank you for reading.