'Subsidies not the solution to high oil prices'

MANILA, Philippines – With oil prices on the rise anew, calls for the scrapping the oil deregulation law are again being made. However, an energy expert points out that this is not the way to solve the problem of fuel pricing.

Prices will still soar, whether the oil sector is regulated or not, according to former energy secretary Francisco Viray, the main guest at a live web forum hosted by abs-cbnNEWS.com on Tuesday night, December 16, 2009.

Viray explained that this is because the Philippines is highly-dependent on imported oil, making it susceptible to inflation and world market prices shifts.

The Oil Deregulation Act of 1998, or Republic Act 8479, was passed during Viray’s stint in the Department of Energy under the Fidel Ramos administration.

Before the law was enacted, oil prices were regulated and fluctuations in the price of oil in the world market were subsidized by government through the Oil Price Stabilization Fund (OPSF).

Viray, however, pointed out that certain problems in subsidizing. The government does not have enough money to begin with. Finances, he added, has always been the problem of a regulated industry.

This is precisely what happened with the OPSF. In theory, the fund was supposed to accumulate reserves whenever oil prices are low while refunding oil companies for their losses when global prices are high.

Fund mismanagement and successive increases in global oil prices led to a huge deficit in the OPSF that the national government ended up subsidizing. This prompted proposals to deregulate the industry. MORE