Oil and Gas Price Increases Meet Opposition in Philippines - NYTimes.com

Image via Wikipedia

By CARLOS CONDE

MANILA — When the three largest oil companies in the Philippines increased the pump prices of diesel, gasoline and kerosene on Oct. 20, they set off more than the usual grumbling from consumers and transport groups. With millions of Filipinos still reeling from the effects of successive typhoons, the corporations were criticized as greedy, insensitive, callous and predatory.

The companies — Royal Dutch Shell, Petron and Chevron (known here under the brand Caltex) — increased the per-liter prices of diesel by 2 pesos, or 4 cents, an increase of about 6.7 percent. Gasoline prices went up 1.25 pesos a liter, or a 4.74 pesos a gallon, and kerosene by 1.50 pesos. According to the Ibon Foundation, an independent economic research group, the increases were the biggest of the year. The companies insist the increases reflect world oil prices; crude has risen from as low as $32.40 in December to about $79 this week.

Changes in the price of fuel have been a touchy subject here since 1998, when the government passed the Oil Deregulation Law. In addition to taking away government control of pricing and opening the industry to foreign investment, the law removed longstanding government subsidies of oil products. Although the deregulation has been unpopular with voters, the government has not backtracked — until now.

President Gloria Macapagal Arroyo issued Executive Order 839 in the past week, demanding that the oil companies reduce their prices on the main island, Luzon, or face penalties.

Many consumers praised the decision and her “political will” and said the decree could help millions of Filipinos recover from the recent calamities. But economists, business groups and industry analysts said the unprecedented intervention could scare investors away from the country, and create fuel shortages and a new black market.

“This government seems to have lost its sense of what it should be doing,” said Peter Wallace, founder of the Wallace Business Forum, a consulting group that advises some of the largest multinational companies in the Philippines. The country, he said, “is attracting the lowest level of foreign investments among major countries in Asia. So you have to ask the question why it issued the executive order.”

Mr. Wallace said if the government wanted to reduce the cost of fuel for consumers, it could have given out discount coupons to those directly affected by the typhoons. As it is, he said, “those with S.U.V.’s are the ones that will benefit from the price controls, not the poor people.”

Except for Shell and Petron, which refine oil in the Philippines, all oil companies here import their finished products. Because the prices of these refined products are tied to world markets, the companies now might think twice about importing more, given the possibility of losses, said Benjamin Diokno, an economist and former budget secretary.

“The wisdom of E.O. 839 will come to its severest test once oil product supply is disrupted,” Mr. Diokno wrote in BusinessWorld, a Manila newspaper. “For the oil firms who were enticed by the downstream oil industry deregulation law, this recent E.O. is a nightmare.”

The oil companies have complied with the order, and rolled back prices. But they warned that the order might have grave consequences, among them “supply disruptions and negative impact on the investment climate in our country,” according to Roberto Kanapi, a Shell spokesman.

Even now, just days after the order was announced, the oil companies are saying that their losses stemming from the directive will be large, with Petron alone estimating a 1.5 billion-peso loss in the fourth quarter. The government has not indicated when it might lift the executive order.

Oil consumers, meanwhile, have welcomed the decree. Raul Concepcion, a Filipino industrialist who heads the nonprofit Consumer and Oil Price Watch, said the oil companies had it coming. The companies’ “predatory pricing” in the years since the Oil Deregulation Law was passed created the conditions that prompted the reimposition of price controls, he said.

“If there was total transparency in the pricing of oil products, then the oil companies would not be suspected of predatory pricing,” Mr. Concepcion said. Ralph Recto, Ms. Arroyo’s economic planning secretary, had accused the oil companies of overpricing by as much as 8 pesos per liter of gasoline, a charge the companies denied.

The companies have insisted, now and in the past, that their prices are dictated by the market. None have been prosecuted for predatory pricing, despite allegations from groups including Mr. Concepcion’s. But because prices at the pump tend to move all at once, and because the companies have refused to open their books to scrutiny, suspicion has grown among the public.

Some people are urging the government to expand the price freezes nationwide. “Why impose the price controls only in Luzon? The other islands should also be covered, especially because the price of oil in the Visayas and Mindanao are 5 to 7 pesos more expensive compared to Luzon,” said George San Mateo, secretary general of Piston, the country’s largest group of public-transport operators and drivers. Visayas and Mindanao are the two other main island groups in the archipelago.

Mr. San Mateo said he was worried that the oil companies would try to offset their losses in Luzon by overpricing in other areas — a concern shared by Mr. Recto, who recently resigned as Ms. Arroyo’s economic adviser. He said the order would “penalize” consumers in other places.

The executive order may have helped shift the political atmosphere and opened up new opportunities for opponents of deregulation. Already, there are resolutions pending in Congress seeking to repeal the 1998 law.

Satur Ocampo, a congressman, said the law “is a mistake and a burden to poor Filipinos.” It has made the oil companies abusive, he said.

“Even without the administration admitting it, and despite its adherence to deregulation, the recent price hikes have shown that the deregulation policy is a failure,” said Renato Reyes Jr., secretary general of the New Patriotic Alliance, an umbrella group of grass-roots organizations that has pushed for the repeal. “An alternative to deregulation is now in order,” he said.

National oil companies control 80 percent of the world’s oil. But they’re not all alike - Foreign Policy

Image via Wikipedia

by Valerie Marcel

"Big oil," as Daniel Yergin notes, isn't what it used to be. Forget the "seven sisters" -- those huge companies that dominated the oil business in the 20th century. Today, at least 80 percent of oil reserves are in government hands, and three quarters of the 20 biggest oil companies are owned by states, many of them struggling to meet the needs of their populations.

With the global economic downturn walloping companies large and small, it's worth asking: What happens to all that state-owned oil? After all, national oil companies, those state-owned petroleum giants that just last year were enjoying $100-plus-a-barrel oil, aren't immune from the recession. Their revenues have slipped as oil prices tumbled. Today many of them are hurting, and the big question is whether they are equipped to invest in the downturn. Lack of investment in the lean years could provoke a price spike -- or worse, a supply shortfall -- when demand picks up.

Not all national oil companies are the same, however. Operating costs vary wildly between the easy-to-drill onshore fields in Saudi Arabia and the expensive ones lying deep, deep off the coast of Brazil. Access to finance is another crucial, though little understood, part of this picture.

There are basically two types of national oil companies: those with ready access to capital and those without. In good times, the first group operates more like the publicly traded private oil companies -- like the Shells and ExxonMobils of the world. They sell the crude oil they produce and retain earnings after paying their government and shareholders the royalties, tax on profits, and dividends owed. This group includes Saudi Aramco, the Kuwait Petroleum Corporation, the Abu Dhabi National Oil Company, Algeria's Sonatrach, China's CNOOC, Brazil's Petrobras, Malaysia's Petronas, and Angola's Sonangol. Many of them are able to finance their own projects from retained earnings, without resorting to loans or investors (as are most of the private oil majors).

In bad times such as the present, this system isn't free of trouble. These cash-rich national oil companies remain instruments of the state and can be forced to transfer more revenues to the government in times of falling oil prices and dwindling state coffers. They may also have to increase their contribution to national welfare programs. If they have been able to accumulate cash reserves in times of plenty, they will be more insulated from the market downturn. But if the government becomes too needy or too greedy, the companies have to turn to other financing vehicles, such as issuing bonds to outside investors to raise capital. Some national oil companies, such as Petrobras and Norway's StatoilHydro, are more protected from government needs and interference because they are partially listed on stock markets. They raise capital that way and also enjoy better access to loan and credit markets due to their higher standards of corporate governance and transparency.

But for national oil companies without ready access to capital, such as the National Iranian Oil Company, Mexico's Pemex, and the Nigerian National Petroleum Corporation, tough economic times can be much harder. They essentially function like government ministries and are susceptible to budget cuts. They sell the crude oil produced for the state and the revenues go straight to the treasury, while the companies receive back only their costs and sometimes a fee for each barrel sold. To pay for new drilling rigs and other capital expenditures, they must compete with other pressing government priorities, such as education and healthcare.

Over the years, these national oil companies have had to devise creative mechanisms to fund their most capital-intensive projects when oil prices fall. Some of them are financially adroit and have tapped into a variety of mechanisms to access finance independently from the state: loan markets, bonds, Islamic bonds, and oil futures, for example. Some have also set up foreign companies that generate revenue independently from national constraints. They have also turned to foreign investors and some $50 billion in oil-for-loan agreements with Chinese national oil companies. (The Chinese companies invest in those countries in exchange for a guaranteed future supply of oil from those projects.)

But the oil industry might be changing with these leaner times. As both types of state oil companies are forced to get more creative in finding ways to access capital, they will have to improve their standards of corporate governance and disclose more information on their operations. If they don't, outsiders will be less willing to invest, particularly in countries with perceived political risk, such as Nigeria and Venezuela. And that could mean less oil -- and higher price -- for everyone.

Asian Companies’ Thirst for African Oil

Source: Chatham House

A new report on the activities of Asian oil companies in Africa exposes the flaws in many general assumptions about Asian engagement with Africa. Thirst for African Oil: Asian National Oil Companies in Nigeria and Angola analyses the impact of these companies in the two leading oil producing countries in sub-Saharan Africa, and contrasts the stability and policy consistency that are features of the Angolan system with a more insecure and unstable system in Nigeria.

The report finds that fears in Western capitals about an Asian takeover in the Nigerian and Angolan oil sectors are ‘highly exaggerated’ - the oil majors still dominate production and hold the majority of reserves. Indeed, in Angola, there is growing fatigue among officials about the West’s fixation with China’s engagement with Angola.

Thirst for African Oil concludes that neither Nigeria nor Angola fits the stereotype of weak African states being ruthlessly exploited by resource hungry Asian tigers. In Nigeria’s case, a cash-hungry political class sought to profit from its Asian partners’ thirst for oil whilst in Angola the relationship with China was nurtured in a pragmatic, disciplined way to the mutual advantage of both countries.

The report also compares the experiences of Chinese companies with those of India, South Korea and Japan and assesses the growing competition between China and India where China’s deeper pockets have put a brake on India’s ambitions.

+ Full Report (PDF; 1.7 MB)