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 Bermudez

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

Pilipinas Forum 20: Turbulence, Chaos Theory and the Stockmarket

Another long exchange here (12 pages) in pilipinasforum yahoogroups more than 9 years ago, on turbulence and chaos theory, applied to business and economics, the stockmarket especially. Enjoy!
---------


Turbulence, Chaos Theory and the Stockmarket
Feb 2002

Our friend Fidel Nemenzo sent me this one related to Dr. Muriel's lecture tomorrow evening at WSPC, AIM re. "the application of turbulence theory in stocks trading". Fidel obtained his PhD Math from Sophia U, Japan; he's the only number theorist in this country. He's teaching now at UP Diliman.
----------

Pards, mukhang interesting ang lecture ni Dr Muriel sa AIM. Dr Muriel is known for his ideas on turbulence, the nature of which is one of the main problems of chaos theory. One of the characters in Jurassic Park, Ian Malcolm, was a chaos mathematician. Jurassic Park was an example of a non-linear dynam ical system. Conventional (or the common-view) science (Newtonian) says that the physical world is a machine, governed by equations. If one knows these equations, and all the "initial conditions" in a a given system, just plug in these "conditions" into the equations and you can predict what happens to the system. This is what the creator of Jurassic Park believed: if you know all the "equations" what govern everything in Jurassic Park and the behavior of its creatures, plus the most accurate observations of the system, then you can predict everything that can possibly happen, and maintain control over it. Sabi ni Ian Malcolm mahirap yan, at halos impossibleng i-predict kung ano ang pwedeng mangyari. Chaos can arise out of the most "orderly" situations. Which is what happened.

The central goal of chaos theory is the study of systems that exhibit chaotic or "random" behavior. Parang may contradiction dito: the search for order within disorder. May tula si Wallace Stevens, " ... A violent order is disorder, and a great disorder is an order. These two things are one." This describes what happens in most natural systems. (Or even "social" systems, like a crowd. The most orderly crowd can metamorphose into an unruly mob in an instant, just as the perfect storm may just be over the horizon of the calmest sea.)

Another example of a "chaotic" system is the stock market, thus the growing interest in the mathematical theory of chaos among economists. Stock brokers and currency traders know that prices quoted in any financial market can change unpredictably. Huge volumes of money are made or lost in sudden bursts of activity. Classical mathematical models of finance cannot explain this behavior, for volatility is central to the behavior of financial markets. Which is why new explanations of market behavior are being sought using ideas from chaos theory. Or even fractals-- pero saka ko na lang ito i-e-explain.

The way fluid flows, or the behavior of a plume of smoke-- these contain both order and disorder. The term physicists use is turbulence-- which is chaotic and unpredictable. The study of turbulence is a key problem in physics. Conventional theories may be able to explain the smooth flow of water when the tap is turned on lightly. But nothing explains the turbulent flow of water when the tap is strong. Dr Muriel has proposed a theory which explains such behavior. I guess that's what he hopes to do in his AIM talk-- to shed some light on the volatility and unpredictability (turbulence!) of financial markets using his ideas on fluid flow. Both types of systems exhibit essentially the same activity. I can't go to the lecture; kwentuhan mo na lang ako.

- Fidel Nemenzo

Chaos theory may well become one of the most important theoretical fields in the 21st century (aside from relativity and quantum physics). I have been fascinated with how seemingly innocous changes in the initial conditions can have multiplier effects which are often complex and unpredictable. The most popular example is known as the "Butterfly Effect" in which the flapping of a butterfly's wings for example in Germany (I'm still in a thrall with the "butterfly" ending in "All Quiet on the Western Front" flick. Thanks Gina!) could cause miniscule atmospheric changes and which, given a time horizon could affect weather patterns in Pampanga. And think of how a very small change in testosterone level of an individual could trigger a nuclear war (ala Dr. Strangelove). So it could be like goodbye mankind, hello dinosaurs kind of thing.

Anyway, the latest experiment on the chaos theory involved sending a random signal to the Pioneer 10 spacecraft which is already in the edge of our solar system (before it will get blasted into smithereens by a Trekkie in the future, he he he). As Fidel pointed out, even the random dripping of a faucet has an order behind it. In other words, there's beauty in madness. or a method behind every madness.

- Glenn de Guzman

Pilipinas Forum 17: The Church and Galileo

Another long exchange (12 pages) among members of pilipinasforum yahoogroups made 10 years ago. A friend asked me why I post here PF exchanges when some of the topics or the commentators were not obviously on free market or rule of law or personal responsibility and related topics. I replied that PF is my brainchild, I formed it along with a friend from UP, Monching Romano. It was in PF where I learned hard and long debates, and from those debates I slowly discovered the merits and beauty of free market.

I should post more PF exchanges in the coming weeks and months. Cheers.
---------

The Church, Faith and Galileo

Posted in inq7.net, July 25-29, 2001

As I am still wrestling at the arguments over birth control and the long-term survival of this country (I am for population control.), the Church should also ponder and make a firm stand in regard to these stories reported recently:

1. The rape of nuns by priests, mostly in Africa - some of the nuns got pregnant, and higher priests encouraged abortions. One rapist-priest even got an assignment in England.

2. The Church in Mexico is against aborting the baby of a 12-year old child. This girl, who was reported to have a mental age of 8, was raped by her own father. Sad.

-Lardy Caparas

I think priests should be allowed to get married or to have girlfriends and yes, even boyfriends (ang daming homosexual, and why should the Church condemn it?) Bakit ba nila kailangan mag-rape? But maybe the problem is deeper than just not allowing priests to have a sex life--it may have its roots in gender issues. Enforced celibacy--talk about asking people to be abnormal. Tuloy, tingnan mo nangyayari--priests rape nuns, boys, etc.

Abortion is another issue that has to be examined closely. The Church will have to take a more flexible stand. The Church may also want to examine its stand against female priests. Maybe it ought to examine its reasons for denying women a greater role in the Church.

-Vicky Suarez

We should not equate priests who have done evil with the Roman Catholic Church. That logic is seriously flawed. It is similar to saying that since some of our countrymen are corrupt, then Filipinos in general must be corrupt.

The Church itself is a supernatural institution which will last until the end of time, as Jesus Himself guaranteed when he installed Peter as the rock on which the Church was built. Its members are not only the hierarchy, meaning the pope, bishops and priests, but also all the lay people who have been baptised. When we criticise the Church, we really criticise all the members of this institution.

What the Church reminds us is that man has a soul that is immortal. We have intelligence, free will, creativity, emotions, etc. which are manifestations of this spiritual soul. We do not inherit them from our parents like our physical traits, they are unique and unrepeatable gifts from God. These are infused in each one of us from conception and whether these are developed and nurtured to the full depends heavily on the environment in which the child grows – which explains the important role of parents, teachers and community in life-long education.

The Church teaches us that our life in this world is a pilgrimage to our ultimate destiny, which is Heaven. She teaches us to love one another as we love our neighbors, to live honest lives, to be generous, to work hard, etc. Aren't these the things we need to ensure full development? The poverty and wars that we see around us are in fact caused by greed and selfishness by people. If we only truly lived the Christian virtues individually and collectively, our society would be much different. The so-called Christian societies that scandalise us are only really caricatures of the true community that Christianity preaches.

Love itself involves trade-offs. Priests and other religious give up the material comforts of lay people to live their vocation of total dedication to God. The sacrifices that they make are not negative but really a positive affirmation of their love for God. Similarly, a married person has to fight against the temptation of having extra-marital relations with other people. Do we call the extraordinary acts of fidelity by spouses to each other as repression? Love is an act of the will. And our will has the freedom of doing both good or evil - to be faithful or not. To be faithful to one's spouse or to the priestly vocation is to really love. Otherwise, one would only really love oneself, which is selfishness.

-Ronald Villanueva

Pilipinas Forum 13: On Zero or Minimal Government

These are the exchanges in pilipinasforum yahoogroups in the middle of October 2001 or 10 years ago. Enjoy the 11-pages long exchanges and debates. The pictures and cartoons, I just added them here. Cheers.
--------

May I ask this question: "What the origin of zero government?"

"State of nature", according to social contract theoreticians Hobbes, Locke and Rousseau.

"Primitive communal" mode of production, according to Karl Marx.

"Invisible hand/perfectly competitive market", according to classical economists like Adam Smith.

"Invisible nature", according to Nonoy Oplas. he he he.

-- Nonoy Oplas

Noy, am interested on zero government. Sat down a few weeks ago with some friends on a single issue: getting rid of government and replacing it with the "market" as a mechanism to provide the social services which many governments, particularly in developing countries, have been remiss with.

One fellow argued eloquently how everything can be privatized: armed forces and defense, education, health, foreign affairs, infrastructure . . .

He argued that in the case of the Philippines, he does not agree with the passage of the 1987 constitution but he it is imposed upon him anyway. He queries if one did not vote, his dissent is ignored. and the budget deficit of the government is imposed upon him.

Inflation, which he describes as the worst kind of taxation is the fault of government. in the private sector, if you make wrong business decisions and the business collapse, you pay for it. but the government despite all its horrible acts does not pay for its mistakes.

I must admit i agree with him. but i argued that because of the political economy we have, the "market" is the first thing we have to establish, while contending with the powerful political forces and interests. unless we recognize the dynamics of forces present, we will get trampled by them. I added that his idea will only work if:

1. there is a limited universe of participants to the market bounded by some common parameters, e.g. all bettors in a cockpit locked inside

2. the market is more or less homogenous, e.g. again all of them sabungeros (cockfight gamblers).

3. penalties are stiff, e.g. you don't want to not pay your bet in the cockpit arena

then we will all have to be sabungeros.

who took the cookie from the cookie jar,

-- Harlequin

I have just survived two days in the pig pen we call the House of Representatives and listened to Congressmen heckle us while they look here, there in the budget for where they can find their swill (CDF). Talk about black holes and nothingness. Looking at them strut and preem reminds of the need for a big bang to shake these pools of primordial soup into some higher life form. They shall pay for making me miss Ally Mcbeal and ER and Survivor 3! Fortunately, I am home in time for Star Trek Voyager on the Hallmark Channel.

I find it amusing that these sanctimonious cretins (are they eligible to be called life forms?) talk about issues like the world depression and the deficit and all they want to know is where is their money??

What is the rationale for these posts? You want to find the origin of zero - of nothingness? Look no farther than there in the House of Representatives. Unfortunately, these black holes are supposed to be the representation of the sovereign will and wisdom(????) of the people.

-- Ricky Sunico