29 January 2008
MANILA, Philippines--When the world’s oil prices hit the critical $100/barrel early this year, Mrs. Gloria Arroyo called for the holding of an energy summit to address the crisis. The first round of the series of talks in the summit is being held today at the Mall of Asia in Pasay City.
What this summit intends to achieve, however, is pathetically unclear. It is not clear whether the main concern is to address the impact of high prices of fuel and power to consumers, or to resolve the fiscal quagmires of the government. This is because prior to the summit, the government already laid down its bottom line by rejecting calls for the scrapping of the Oil Deregulation Law and the lifting of value added tax (VAT) on petroleum products. The government is also against the overhaul of Electric Power Industry Reform Act (EPIRA) and has rejected calls for the cancellation of onerous IPP contracts.
FDC believes that without confronting these basic issues, this summit will definitely end up as a mere talking shop. For this summit to become relevant to the immediate and long term interests of our people, it must go against the government’s own fundamentals.
For how can the summit address price gouging and manipulation, which is common practice of global and local oil cartels, when the government does not want to touch the International Monetary Fund (IMF) and World Bank’s deregulation policy which effectively reduced government’s role in the industry to mere “monitoring?” And how can the summit significantly reduce domestic oil prices when Mrs. Arroyo’s VAT is making local pump prices P4 higher? How can the summit reduce the cost of electricity when the government does not want to renegotiate or cancel onerous IPP contracts?
It is therefore plain double-talk for this summit to discuss high prices of oil and power when the government itself had no intention of intervening on this aspect. Perhaps the summit will merely talk of “little things” and not of fundamentals – not when GMA just got fresh approval from credit rating agencies for pursuing her current policies.
There could be a hundred or more factors to cite behind the oil crisis. But while there is truth to the fear that increasing global demand for oil is surpassing the Organization of Petroleum Exporting Countries’ production capacity, the bigger truth that this industry has gone beyond the control of states and peoples is far more a serious concern because this situation limits governments’ and people’s intervention on the crisis.
Hence, this government is just fooling itself if it plans to address oil price hikes without touching on the Oil Deregulation Law. This law rendered the government inutile and the people helpless against oil price increases. Since its passage in 1998, prices of petroleum products in the country rose by more than 500 per cent. Domino impacts of high prices of oil to other products are indubitably immense.
The power industry is one. The National Power Corporation (Napocor), for instance, had allocated P33.87 billion for the needed oil supply to cover the fuel requirements of power plants for 2008. The higher the cost of oil to power plants that use oil/diesel inputs, the higher the cost of power for this particular type of plants, thus, the higher the price of electricity for the end-users. Under EPIRA, fuel costs incurred by Napocor and IPP plants are recovered automatically from the consumers. And just like oil, high cost of power pushes the costs of other products up. This is the main logic why, for a long time, oil and electricity were considered “socially-sensitive” products and thus, had been exempt from VAT.
But it was the Arroyo government all the same which imposed the 12 percent VAT on oil and power, which means that it was Mrs. Arroyo herself who made the local pump prices P4 per liter higher!
Now the government rejects the lifting of VAT on oil and power because it is afraid to lose some P40-P60 billion in actual revenue, which, as the finance department argued, will be used for social services and infrastructure expenses. What the DoF did not tell us, however, is that about 80 percent of government's tax revenues merely go to debt payments. If only the government has the will to change its policy on debt repayments and decisively address the many loopholes in the current tax system, sufficient funds can be freed to finance social services and infrastructure projects.
VAT on oil and power is a fundamental issue that needs to be urgently addressed. FDC, which is for progressive taxation, opposes VAT because this tax system is patently unfair and unjust. VAT is a regressive tax, a pass-on tax which burden ultimately is borne by consumers at the end of the line. Imposing it on socially-sensitive products like gas and power will surely hit people alike regardless of their status in life.
Hence, removing VAT on oil and power will bring no harm to our people. In fact, justice will be served only by ending this unjust taxation. In doing so, the government will not be losing anything except its face in front of creditors which compelled the DoF in the first place to channel VAT proceeds to debt payments.On Clean Energy
The summit is also reportedly going to tackle alternative programs for green, clean and renewable sources of energy to end the country’s dependence on imported fossil fuel. This is a good direction to pursue especially in the face of the growing problem of climate change.
But this can be done only if the government allocates more funds for these programs – which we doubt it will do if priorities are still on debt payments and programs are still done under the framework of deregulation, liberalization and privatization policies. -30-