IBON QUESTIONS METHODOLOGY USED IN OIL PRICE REVIEW COMMITTEE FINDINGS

‘No overpricing, deregulation working?’

Research group IBON questions the findings done by the oil price review committee, particularly the methodology and data that it used, to have concluded that oil prices and the profits of big oil firms in the country are deemed reasonable. 

The Department of Energy (DOE) formed the independent review committee to look into allegations of overpricing by oil firms and find out if they are accumulating excessive profits. However, IBON asks if the committee was able to require oil firms to open their books to obtain key information such as supply contracts and inventory data.

These data would have revealed if the values of oil imports and inventories were correct, as well as would have determined the exact profits of the oil firms.  The amount paid by oil firms for imports, for instance, may be different from spot prices especially if they are under long-term supply contracts. According to IBON, it is important for the committee to have looked at supply contracts to know the prices actually paid, as well as how inventories are valued to see if windfall profits are made. 

Moreover, it is not clear if the committee has fully examined the dynamics of profiting in the oil industry, the research group said. For example, if the oil firms engaged in the intra-corporate practice of transfer pricing (in effect transfer profits to their mother firms abroad), this would naturally register lower profits for oil firms in the Philippines. 

IBON also questions the recommendation of the committee on the continuation of the oil deregulation law. According to the group, it is erroneous to assume that under deregulation, market forces fully come into play and make oil prices competitive, with the consuming public benefiting from fair prices. The global oil industry is under the monopoly of transnational corporations (TNCs) like Royal Dutch Shell, British Petroleum, Chevron Texaco, etc. through their effective control over oil reserves, technology, capital, infrastructure, and marketing. When one firm has control over every stage of production and distribution, it does not need a spot market and can also rig the price of its commodity to widen its profit margin. 

According to IBON, oil giants can afford to have a lower profit margin or even appear to operate on a loss because their mother units have already earned superprofits even before their products reach the local pump stations.  Promoting continued deregulation of the oil industry means allowing oil giants to continue making these profits and maintain their position in the industry at the expense of the public, the research group said.