The series of oil price rollbacks on diesel implemented by oil companies this month are not enough because diesel prices are overpriced by a total of P6.45 per liter from January to September this year, according to research group IBON Foundation.

This estimate was the cumulative overpricing over the January to September period, computed based on the monthly movement of Dubai crude, diesel and pump prices, and the foreign exchange (forex) rate.

According to IBON research head Sonny Africa, the worst overpricing happened in June to August when oil firms used record Dubai prices to increase pump prices, and then rollback pump prices to less than what is justified. Overpricing in those three months amounted to a total of P13.50. Although there was underpricing recorded in some months since January, the price of diesel was still overpriced over the nine-month period.

Africa noted that this pattern has continued since the start of deregulation where diesel pump prices increased 1.7 times faster than Dubai crude prices in peso terms. The cumulative overpricing only shows that big oil firms use their monopoly over pricing to dictate pump prices that are beyond what can be justified by global crude oil price movements.



The recent series of petroleum pump price rollbacks are welcome but independent think-tank IBON Foundation believes that oil firms should be transparent with their pricing particularly in the wake of windfall profits earned by oil firms due to record-high world crude prices.

According to research head Sonny Africa, how the oil firms determine pricing and the amount of rollback remains a mystery. Unless these firms reveal their pricing structure, the public remains captive to the whims of oil companies and dependent on the government’s “moral persuasion”, he added.

IBON pointed out that because of the practice of transfer pricing by global oil firms, it has become increasingly difficult for the Department of Energy and other stakeholder groups to determine how much local pump prices should move in relation to global oil prices and the peso-dollar exchange rate. Through transfer pricing, oil transnational firms are able to artificially bloat the price of oil as it passes through the different stages of production and distribution chain which they control.

IBON further pointed out that global oil prices whether Dubai spot crude or Mean of Platt’s Singapore , which are the benchmark that oil firms use in determining local pump prices, are unreliable as they are bloated by speculation. A 2006 study by the US Senate showed that 30% or more of world crude oil prices are driven by speculation. Locally, IBON estimates that prevailing pump prices of unleaded gasoline are overpriced by 23% because of speculation.

Oil firms have been allowed to further achieve monopoly control over the industry because of deregulation, which makes urgent the need for government regulation and control over the local oil sector to help ensure transparency in pricing, said Africa .


Oil prices have increased by an average of 50% over the past year, highlighting the failure of oil deregulation in bringing down petroleum prices and the urgency of reinstating regulation, according to independent think-tank IBON Foundation.

Between June 2007 and June 2008, average pump prices of unleaded gasoline and diesel have increased by 47% and 52%, respectively.

Further, since the start of deregulation in 1996, pump prices of unleaded gas have increased by 492 percent. Meanwhile prices of diesel have increased by 607 percent.

Oil deregulation was supposed to ensure affordable and accessible petroleum products by breaking up the local oil cartel, allowing “market forces” to determine the real price of oil. Instead, it only gave Shell, Petron and Chevron (formerly Caltex), more room for speculation and to dictate prices and price hikes. IBON estimates that as much as 47% to 54% of the pump price of petroleum products represents windfall profits of the oil firms.

An effective way to break up the monopoly control of the oil firms over the local downstream oil sector and ensure affordable and accessible oil products is to revoke the oil deregulation law and give the government regulatory authority over the oil industry.


Independent think-tank IBON Foundation criticizes the Department of Energy and Malacañang for passing the zero oil tariff cut, saying that reduced tariffs in the last three months has resulted in even higher prices of oil products.   Since the oil tariff was reduced from 3% to 2% in February and 2% to 1% in May, gasoline and diesel prices have increased 11 times to a total of P7.50 per liter. There were two rollbacks of P1.50 per liter for diesel and P1.00 for gasoline presumably brought about by the tariff cut. But since then, pump prices have actually increased by a net of P6 per liter.   The DOE announced yesterday that starting June, imported oil products will enjoy zero tariff cut. It admitted though that the scrapping of oil tariffs would result only in a reduction of P0.50 per liter in pump prices. But local oil firms recently announced that they are looking at a P1.50 per liter increase in diesel prices and P1.00 per liter for gasoline following news world oil prices had hit US$135 per barrel, debunking government argument that the oil tariff cut will bring down oil prices.   Moreover, by choosing to remove tariffs on oil imports, government protects the interests of the oil firms at the expense of potential revenues that should be used to fund vital social services.   IBON maintains that the removal of the VAT on oil is still a more effective solution to the high oil prices. Removing the VAT on oil will immediately bring down pump prices by as much as P5 per liter and directly relieve the consumers, unlike the oil tariff cut that only relieves oil companies from paying import duties.