World B
ank MEN
A K
nowledge S
haring S
ubsidy Reform
Regional W
orkshop D
ead Sea, Jordan
Sept. 7
-11
, 20
14
PHILIPPINE PUBLIC TRANSPORT ASSISTANCE PROGRAM: TARGETED
FUEL SUBSIDY APPROACH ATT Y. JOSE M. LAYUG, JR.
Senior Partner , Puno & Puno Law Offices Professor of Law, U.P. College of Law
OUTLINE
q Overview of Philippine Downstream Oil Industry q Energy Situationer
q Supply and Demand q Issues in Downstream Oil q Revisiting Downstream Oil Industry Act
q Factual Antecedents (1960s, 1970s, 1980s) q Republic Act 8479
q 2008 vs. 2011 Oil Price Fluctuations q Philippine Government Mitigating Measures
q Public Transport Assistance Program
PRIMARY ENERGY SUPPLY MIX
Imported Ethanol, 0.3
Imported Coal, 8.6
Imported Oil, 33.6
Oil, 2.3
Coal, 8.6
Natural Gas, 7.4
Hydro, 4.8
Geothermal, 21
Biomass, 13.1
Wind/Solar, 0.01
CME/Ethanol, 0.3
Indigenous Energy, 57.51
CRUDE OIL IMPORTATION
Others, 8.2%
Indonesia, 0.7%
Malaysia, 10.2% Saudi Arabia, 45.3%
UAE, 27%
Qatar, 6.4%
Oman, 1% Iraq, 1.2%
Middle East 81%
I. Energy Reform Agenda II. Renewable Energy Resources
III. Upstream Oil and Gas Resources
IV. Coal Resources V. Downstream Oil and Gas Resources
DISCUSSION OUTLINE
DUBAI CRUDE PRICES/FOREX March 1984 – MTD August 2011
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
M-84
J-85
N-85
S-86
J-87
M-88
M-89
J-90
N-90
S-91
J-92
M-93
M-94
J-95
N-95
S-96
J-97
M-98
M-99
J-00
N-00
S-01
J-02
M-03
M-04
J-05
N-05
S-06
J-07
M-08
M-09
J-10
N-10
S-11
0
5
10
15
20
25
30
35
40
45
50
55
60
Dubai US$/bbl Dubai P/li Forex P/1$
$/bbl P/$
FACTUAL ANTECEDENTS - 1960S-1980S
1960s: Regime of Free Market Forces
q No government intervention – laissez-faire economics q Market share by competition; 4 refiners and 6 marketing companies
1970s: Dawn of Regulation q Creation of Philippine National Oil Company; government enters oil industry q Creation of 2 separate agencies: (1) Board of Energy to regulate domestic oil
prices and (2) Dept. of Energy, later renamed to Ministry of Energy, to formulate energy policies and programs
1980s: The Subsidy Regime
q Consumer Price Equalization Fund (CPEF) was established to avoid frequent oil price movements; CPEF was abolished in June 1983
q Oil Price Stabilization Fund (OPSF) created to stabilize the domestic price of petroleum products; review and reset domestic oil prices every 2 months
FACTUAL ANTECEDENTS – 1990S
Sinking OPSF: Deficit, Rising Oil and Supply Crunch
q OPSF deficit reached P16.6B in November 1990 q ERB adjusted OPSF impost; prices increased substantially
resulting in reduced OPSF deficit at P49M in August 1991 q Highest OPSF surplus in June 1992 at P8.3B q RA 7639 - mandated the use of the OPSF (P3B) as payment in
part to the capital stock of the National Power Corp. q OPSF remained positive until April 1995 and deficit continued q In 1996, Congress, through the 1996 General Appropriations Act,
provided a special provision in the PNOC budget allocating P10B to partly wipe-out OPSF deficit
OIL PRICE STABILIZATION FUND
-18 -16 -14 -12 -10
-8 -6 -4 -2 0
2 4 6 8
Jan-87 Jun
Nov
Apr
Sep
Feb
Jul
Dec
May
Oct Ma
r
Aug
J 92
Jun
Nov
Apr
Sep
Feb
Jul
Dec
May Oc
t
Mar
Aug
J 97
Jun
Nov
Apr
Sep
Billio
n Pe
sos
P5Bn Petroleum
Price Standby
Fund (RA 6952)
P3Bn equity infusion to NPC
(RA 7639)
P5Bn Remitted by
PNOC
P4Bn Remitted by
PNOC
APM implemented mid-Aug 1996
FACTUAL ANTECEDENTS – 1996
Onset of Deregulation
q Oil industry left with three refiners: (1) Caltex, which acquired Mobil; (2) Shell, which acquired Getty; and (3) PNOC, which bought Filoil and Esso
q OPSF had a P2.5B deficit when RA 8180 was passed into law in March 1996; oil price became highly politicized
q With rise in international oil prices, government decided to
relax regulatory functions and let market forces take over.
q RA 7638 (1992) – created the DOE with mandate to encourage free and active private sector participation
q Supreme Court declared RA 8180 unconstitutional in 1997
FACTUAL ANTECEDENTS – 1998
Transition Phase to Full Deregulation
q RA 8479 – New Downstream Oil Deregulation Law signed in February 1998
q Automatic pricing mechanism - adjusted the wholesale posted prices of petroleum products based on the changes in Singapore Posted Prices. APM enabled adjustments in domestic prices to approximate closely and reflect promptly the movement of international prices of oil
q Executive Order No. 471 (1998) declared full deregulation of
the downstream oil industry
REPUBLIC ACT NO. 8479
How government monitoring oil prices?
q DOE Circular 2005-08-007: “Oil companies shall notify DOE within 1 day but not less than 6 hours prior to implementing any intended price increase and prior to any public announcement of said movement”
q DOE-Transport-Consumer Agreement: Monthly Movements pre-2009; Weekly Movements post 2009
q Garcia vs. Executive Secretary (GR 157584, April 2, 2009): “That oil firms have same prices and changes them at the same rate at the same time are not sufficient evidence to conclude that collusion exists…”
REPUBLIC ACT NO. 8479
What is “Fair Price”?
q Law does not define the term. q Depends on perspective: (1) For investors: investment return +
reasonable profit; (2) For government: at least cost is recovered by oil players; (3) For consumers: low and affordable
q DOE uses APM: Estimated price adjustments based solely on changes in import cost and foreign exchange movement; does not consider movements in other costs, such as biofuels cost, labor and operating costs, etc.
2011 PRICE MONITOR
Scenes in the International Market
Middle East Unrests q Crude oil price remained above $100 per barrel with political
situation in Egypt, Libya, Bahrain, Yemen, Iran, Iraq
Economic Uncertainties q Spain debts, Greek default, Euro tanks, US weak economy outlook
OPEC Discord and IEA Strategy q OPEC abandons 24.845M b/d but Saudi boosts output q IEA releases 60M barrels over 30 days or 2M b/d Japanese Tsunami and Earthquake World Oil Demand and Asian Economies Increase
2011 PRICE MONITOR
q WTI, Brent and Dubai
$/bbl
30
40
50
60
70
80
90
100
110
120
130
140
150
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Dubai Brent WTI
30
40
50
60
70
80
90
100
110
120
130
140
150
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Dubai Brent WTI
$/bbl
INTERNATIONAL PRICES January 2005 – MTD October 2011
$/MT
35
55
75
95
115
135
155
175
195
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
250
350
450
550
650
750
850
950
Dubai ULG ADO CP
EVOLUTION OF PUBLIC TRANSPORT ASSISTANCE
PROGRAM: PANTAWID PASADA
PH
ILIPP
INES
PANTAWID PASADA
q President issued AO No. 6 “Organizing the Inter-Agency Energy Contingency Committee (IECC)
✦ A precautionary measure to ensure that necessary preparation are in place in the event of oil supply cut
✦ Update the Oil Contingency Plan
q DOE issued Circulars on Biofuels, Minimum Inventory and MPSA Included DBM and NEDA in the IECC
q DOE created the DOE Energy Security Committee and the Secretariat
q IECC identified the transport sector as one of the vulnerable sectors hardest hit by the oil price hikes
PANTAWID PASADA
q President issued EO No. 32 “Instituting the Public Transport Assistance Program-Pantawid Pasada”
✦ A targeted relief to the public transport sector: jeepneys and tricycles
✦ Cushion the impact of high fuel prices considering its cascading effect to other vulnerable sectors of the society
q DOE in coordination with DOTC-LTO/LTFRB will issue a smart cards to public utility jeepneys
✦ An assistance for the fuel purchase of legitimate franchise holders and for the continuous availment of the fuel discount offered by oil companies
q DOE to execute a MOA with the DILG for support to about 1 million tricycles
VULNERABLE SECTORS
TRANSPORT GROUPS • Jeepney drivers earn $6/day net income • PUJ fares are regulated and no auto adjustment
WORKING CLASS CITIZENS • Impact on fare increases • No transport subsidies
FARMERS AND FISHERMEN • Use petrol-run machinery and equipment • No government support
PANTAWID PASADA
PROGRAM DETAILS (in Pesos)
Allotment 300,000,000
5% for admin cost 15,000,000
Amount for card loading 285,000,000
Load for 100,548* cards 105,575,400
Balance for reloading 179,424,600
Additional load to 100,548* cards, per 1,784.47
Original load, per 1,050.00
Total benefit, per 2,834.47
PANTAWID PASADA
PANTAWID PASADA
! !
! ! !
!
PANTAWID PASADA
KEY LEARNINGS
q Program well received by many sectors – transport, politicians, local government except economists
q Jeepney drivers felt direct assistance of government
q Program emphasizes need to operate jeepneys legally
q Good collaboration among government offices
q Lack of interconnected government database for jeepney registration
q Budgetary and manpower constraints in distribution
q Need for more media campaign
World B
ank MEN
A K
nowledge S
haring S
ubsidy Reform
Regional W
orkshop D
ead Sea, Jordan
Sept. 7
-11
, 20
14
PHILIPPINE PUBLIC TRANSPORT ASSISTANCE PROGRAM: TARGETED
FUEL SUBSIDY APPROACH ATT Y. JOSE M. LAYUG, JR.
Senior Partner , Puno & Puno Law Offices Professor of Law, U.P. College of Law