Showing posts with label Poch Bermudez. Show all posts
Showing posts with label Poch Bermudez. Show all posts

Monday, February 13, 2012

Pilipinas Forum 25: On Oilex and Proposed State Monopoly in Oil Trading

These are the exchanges more than 11 years ago and the official position paper that we issued on the proposed National Oil Exchange Commission, a government monopoly corporation on oil trading. As usual, get your favorite snacks and drinks, this is 31 pages long. Enjoy.

Pilipinas Forum

On Oilex and Government Monopoly of Oil Trading

August-September 2001 2000

Dear Noy,

Initially, Cong. Garcia said the OilEx was patterned after the California eletric system, only latter did he start saying that it was patterned after the PEPEX...

and you see noy, it's more than just the bureaucratic inefficiency it will breed, it's also about the INAPPLICABILITY of the proposal...

1. The oil industry does not operate on a GRID system

Independent suppliers of electricity in the State of California or any of its contiguous states could supply electricity anytime and in various quantities (as long as their capacity permits) as transmission of their product throughout the state by the press of a button, such that bidding may take place on a hourly basis and that delivery of the product after bids is ensured.

Unlike an electric grid system, however, where electricity may easily be transmitted instantaneously anywhere within the grid, oil comes from different sources around the world and would take months and before it reaches our shores. The bigger oil tankers have a maximum rated speed of 16 to 18 knots, such that a tanker leaving Venezuela could take three months to reach our shores. Also, it should be noted that California buys its electricity not only from the lowest bidder, but buys only a majority of its supply for a given time from the lowest bidder. It is interesting to note that California still buys from the other bidders on a pro-rated basis, depending upon their proximity to the lowest bid. This is one reason why California was able to stabilize and even bring down the prices of electricity in their area because price competition between the participating bidders were intensified thereby resulting to lower prices.

In the case of the NOEC, it bids out its oil requirements monthly, and this is a totally different, if not, a precarious situation because what will the NOEC exactly do? Anticipate demand monthly? There is no clear mechanism how the NOEC or the DOE will do this and the prospect of fuel shortages occurring isn’t too remote.

The idea that the price of our supply may go to the lowest bidder will not be guaranteed because the NOEC will only have a day to approve the bids. What would happen if a day after bidding the prices of world crude oil immediately goes down? Prices in the world market change daily, even hourly, and fluctuates widely (ANNEX 1b). Still, the best price stabilizer is the presence of competition which has continually checked domestic oil prices despite increasing crude and product prices in the international market.

Also, the measure’s plan to tap the spot market (this is where the government will ideally get the cheapest price) also poses a number of problems, specifically on the cost and time of delivery and the quality of the commodity ordered. For all we know, we might end up spending more processing poor quality Chinese crude! Take into consideration that soon enough power generation plants will be requiring “sweet crude,” or the best quality crude, to conform to air emission standards under the Clean Air Act.

2. Suppliers of crude oil are located in different areas of the world

The Philippines comprises less than ½-percent of the world’s crude oil consumption and it is difficult to presume that we precede others in the sellers’ order of preference. We should always remember that we’re at the bottom of the hierarchy of importance as far as the distribution of crude oil supplies is concerned. The demand for crude oil is highly volatile, though cyclical, such that during the month of October, Europe tries to buy all the oil it can get its hands on, and that US demands for the product traditionally rises in the months of March and April. So how sure are we that we can get a steady supply from the world during these months. It is said that during the Gulf War, the Big 3 have to literally beg to crude oil suppliers the world over to supply them with the commodity. Should the Philippines bid out its crude oil requirements to the world on a monthly basis, wouldn’t it be hard to guarantee that supplies would reach the country on time save when Singapore, who is the closest exporter of crude oil to the Philippines, win out the bid every time.

3. The supply of world oil, as the bill admits, is cartelized.

One irony in the proposed measure is that while it recognizes that a monopoly/ oligopoly/ cartel in world oil supply exists, it fails to subscribe to the fact that the problem of rising oil prices in the country is not a domestic issue, but an international one. If Rep. Garcia vehemently protests against the cartelization of the world supply of crude oil then establishing a NOEC is NOT THE SOLUTION because prices in a cartelized environment will always remain the same. If Rep. Garcia is dead serious about government intervention to augment the problem then maybe it would just be more practical, and less expensive, if government would just implement another subsidy program to deter any oil price hike. But is this not going a step back back?

So what lowest bidder are we then talking about? We should remember that it’s a seller’s market out there, and that OPEC and non-OPEC countries shall and will always sell its product to those who can pay more, like Japan, the US, and the EU. And if we think that the prices of crude oil from non-OPEC countries is cheaper then we should think again. Their prices have historically been the same! What oil producing economy in its right mind would sell its crude oil at a price lower than the OPEC’s when the demand for the product have always been continually high (remember that oil is price inelastic, in the long term, at least)?

To say that what worked with power industry in California will work for the oil industry in the Philippines is downright oversimplification of the problem and of the solution. We cannot get away that easily. Electricity, given that there is a critical amount of power suppliers could be available anytime, anywhere. But, oil, sad to say, could only be available from a limited few (about 40 suppliers the world over) and that the delivery of the said commodity is subject to so many variables (i.e. weather disturbances, political instability, or any other acts of God).

hope this adds to the discussion...

- Poch

Hey Poch,

This is interesting. Actually I'm not so familiar about the nitty-gritty of the debate about this oil exchange of Cong. Tet Garcia. My disagreement with the proposal is basically on its economic theory and principle: it's again back to regulation. Government regulation accdg. to theory and experience, will always result to inefficiency (& corruption) if the subject of regulation is not a "public good", if there is no "market failure", and no "externalities" involved. Thus, if these things are not present, government should NEVER come in to intervene or regulate.

Thus, unlike the provision of national defense or traffic lights, where no private businesses will dare produce and expect to make profit, oil retailing is a purely private good where private businesses – in competition with one another - will provide and make profit in the process.

- Nonoy Oplas

Wednesday, October 19, 2011

Pilipinas Forum 15: Debate on Edsa 2

Enjoy this 13-pages long exchanges and debate among members of pilipinasforum yahoogroups about the "Edsa 2 People Power Revolution" that occurred in January 2001. Being the co-founder and co-moderator of PF, also editor of the PF exchanges that I submitted to (that site is now gone), I really learned a lot from the almost daily exchange of ideas from many members of the list then.

Debate on Edsa 2

February 2001

Edsa II was the successful transfer of presidential power from one section of the elite to another by the direct political action of a broad section of the population. Edsa II was by no means radical or revolutionary. Like Edsa I, Edsa II never threatened to overhaul the fundamental socio-economic hierarchies of Philippine society and never threatened to remove control of the Philippine state from the same dominant social strata.

Still Edsa II was a political moment with profound historical significance. What Edsa II evicted was a presidency supported by political dinosaurs, schooled in the comfortable cradle of martial law, accustomed to an uninformed, powerless and malleable citizenry, and given to governance which allowed a robust renaissance of the cronyism, patronage, and demagoguery. a presidency which failed to grasp the nature of its own obsolescence, and which continued to dabble in desperate conspiracies and maneuverings even as the forces of modernization were already literally closing in on it.

-- Raffy Aquino

My reservations about the world "people" and "broad section of the population" is that it is liberally construed to mean each and every Filipino (or even a majority of Filipinos). without being determined by Constitutionally sanctioned means to determine the world "people" (like referendum and general elections). I believe the danger lies in reducing representative democracy to participants in Edsa 2 and in other urban areas.

The logic behind the impeachment court is that since the Constitution will be removing a nationally-elected person out of his office, it should take a nationally-elected body to do it, and this is the reason why the Lower House cannot act as judges before the court, the Senate was the duly constituted authority to handle such cases. But the "people" went out of the streets and said that the Senate cannot do its job. How are we sure that Edsa 2 was the "sovereignty"? We thought it was, but what if it wasn't?

Institutions become weak when they fail to serve their purpose... in the crisis, their purpose was to determine the guilt of the president according to the articles of impeachment... and they were not able to execute this, ergo, institutional failure. The right to assembly is a Constitutional right, but it didn't say that we remove and replace Presidents with assemblies... so the senate compromised the process... okay, so who determines the "truth" now?

-- Poch Bermudez

As for the perception of the international community, I think, with the exception of a few, they have a positive perception with the installation of a new president. Why would representatives of different countries express their support to the administration of GMArroyo if they do not see the legitimacy of the new administration?

-- Jojo delos Reyes

They say history is written by the victors. Gloria Macapagal is in power, and I have no doubt that the best legal minds will be harnessed to give her Presidency every cloak of legitimacy possible. But here is the thing, if something were truly right is it so because of legal statutes and precedents. Is it so because of the ruling of one judge or even a hundred judges - or is something right because it is right, it is self-evident to any and the virtue of the act speaks for itself?

-- Victor Limlingan Jr.

What we have is only a partial victory, victory in a battle -- but not yet the war.

Already, some players of EDSA are acting like spoiled brats or deprived street kids grabbing for the goodies. Too much expectations on gov't give politicians and bureaucrats the reason to raise taxes, transform them into "development funds", line their pockets and just have the left-overs and crumbs trickle down to the masses -- whose leaders, in turn, cry about graft and corruption.

-- Roy Picart