Wednesday, 9 March 2011

Why P100 gasoline might be good again

Business Mirror

History repeats itself, as expected, and no one is ready, also as expected.

Three years ago (less two months), on May 6, 2008, the title of this column was “Why P100 gasoline might be good.” At the time, crude oil was trading at $122 per barrel.

Investment house Goldman Sachs had then just predicted that oil would reach $200 per barrel. Although the oil price peaked two months later just below $150, inflation in the Philippines hit 9.3 percent in 2008. And what was the reason for this high inflation rate? On January 6, 2009, the Philippine National Statistics Office said “The Philippines’ inflation rate increased to 9.3 percent for 2008 as high oil and food prices battered the economy.” See what I mean about history repeating itself?

From the 2008 column: “When two years ago, oil was $50 and Goldman forecast $100, the Philippines’ political leaders did nothing to prepare for $100. Now they have the opportunity to prepare for $200 a barrel.”

Let me rephrase that statement to make it current and applicable to 2011. When two years ago (May 2009), oil was $70 and Goldman again forecast $100, the Philippines’ political leaders did nothing to prepare for $100. History repeats itself.

I also wrote this in 2008. “No one is confident that solutions will be sought until the problem grows bigger. And that is why P100 gasoline might be good for the country. At P50, the pain is still bearable. When the situation deteriorates and the pain hurts badly enough, then the leaders might finally take some constructive action.”

Fortunately, or unfortunately depending on how you look at it, gasoline did not hit P100 per liter in 2008 and absolutely nothing was done to prepare for crude oil going above $100 in the future. Now we are in that future.

The call to action in that column of 2008 was this. “Who wants to be the next President? Raise your hand. I have the guaranteed political strategy for making you the overwhelming landslide choice in 2010. Tell the people what you are doing today to handle a doubling of oil prices in two years.”

When the 2010 elections came, none of the candidates talked about oil. But then again, they were never asked about oil and fuel prices.

Now that gasoline prices are above P50 pesos per liter again, the government is clueless on what to do again to keep high inflation from “battering the economy.” How clueless you might ask. All basic-commodity prices are dependent on the price of fuel to transport those commodities to the public. The Trade secretary said this on Monday as quoted by the Philippine News Daily web site: “As a last resort, we can impose price controls but that will be upon the approval of the President.” This statement was in response to a question from the Senate about the possibility of “artificial spikes” in consumer prices.

The administration then backed down from the idea of price controls. Perhaps someone looked up the history of price controls on the Internet and discovered that a government controlling prices has a 5,000-year history of failure, unless, of course, creating artificial shortages of goods is the purpose of the government price intervention.

And as to there being artificial price spikes, there is nothing artificial about Brent crude-oil prices going from $80 to $112 in the last five months. Or the United Nations index of global food prices at the highest level in history.

But that is what political leaders are most qualified to do—find someone or something to blame for a problem rather than try to find a practical solution. There is one great advantage to playing the blame game—you can never lose.

Local commentators understand clearly how deficient the government is to deal with high oil prices. You will notice that several are talking about “supply” rather than “price.” Allow me to assure you that no matter what happens in the Middle East, there will not be a shortage of oil if you can afford to pay the price.

The idea that if there is a major disruption of supplies of oil from the Middle East, fuel rationing might be imposed, is about as dangerous as price controls. Here again, anyone who has lived through a period of rationing knows that rationing creates a black market, where the rationed goods are freely available for the right price.

Remember that the vast majority of our imported fuel purchases are used for transportation. The sad truth is that the Philippines has nothing coming close to a rational and practical national (or even just in Metro Manila) transportation policy. Legislators whine about increasing prices for using the light-rail system that will cost commuters an average of P8 per day more. That fare increase could provide more light-rail trains and improve the existing systems. But that would mean having to make far-thinking decisions and that are not politically expedient.

No, it is much easier to wait until the problems become serious and then hold a committee hearing to try and push the solution farther into the future.

Perhaps the only consolation is that those who drive high-priced exotic sports cars may be hardest-hit as fuel prices increase.

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