Would more drastic measures help Philippines bring down fuel prices?

With fuel prices in the Philippines among the world’s hardest hit by the Iran war, consumer groups are urging the government to take bolder action, including tighter control over pump prices. Economists say the more realistic options are tax relief, targeted subsidies and transport support rather than direct price controls. Sharon Garin, secretary of the Philippines’ Department of Energy, said on a radio programme on Sunday that the country might no longer see diesel at 60 pesos (US$1) per litre because of structural damage to Gulf oil facilities during the conflict. “If the war had only lasted for two weeks, prices would have gone down. But the structural damage has already been done. It will take a long time to fix the facilities,” the energy secretary told Super Radyo dzBB. “Even if the prices go down, it won’t be as fast as its increase. We may never get to reach 60 pesos per litre for diesel.” Her remarks underlined a growing concern: that what began as a wartime price shock may turn into a longer-term energy problem for one of Asia’s most import-dependent economies. Petrol prices in the Philippines have more than doubled since the attacks on Iran started on February 28. The Southeast Asian country is highly vulnerable to swings in the global market because of its heavy reliance – over 90 per cent – on Middle Eastern fuel and a deregulation law that removed the government’s ability to set fuel price caps. Economists agreed with Garin’s assessment. “That price level reflected a very specific period of low global oil prices, a relatively strong peso, and lower effective cost pressures – conditions that are unlikely to persist together again,” said Ruben Carlo Asuncion, chief economist at the Union Bank of the Philippines. While short-term rollbacks might occur as global crude prices ease, “sustained returns to pre-pandemic fuel prices are unlikely given ongoing geopolitical risks, supply discipline from oil producers, and structurally higher global energy costs”, he said. Michael Ricafort, chief economist of the Rizal Commercial Banking Corporation, said it would take “a lot of time” for fuel prices to fall. Washington’s blockade of the Strait of Hormuz following failed negotiations with Tehran has yet to make its full impact felt. “For next week, prices will still depend on actual supply developments,” Asuncion said, adding that although geopolitical announcements tended to raise volatility, “material increases usually follow confirmed disruptions rather than rhetoric”. Some relief may be in sight: crude oil prices have fallen to a nearly two-week low of US$96 per barrel and the peso has rebounded against the dollar. These developments would “help ease importation costs and inflationary pressures”, Ricafort said. ‘Defeatist’ message Consumer groups, however, called Garin’s warning “deeply concerning and defeatist”. “The government should not condition the public to accept permanently high fuel prices, but instead focus on concrete measures to bring costs down,” said Ritchie Horario, convenor of the Alliance of Concerned Consumers of the Philippines. The main problem was the deregulation law, said Nanoy Rafael, convenor of the community advocacy group Para-Commuters Network. Passed in 1998, the law was intended to curb monopolies in the energy industry but was now working against the country’s interests, Rafael said. “The promise of the oil deregulation law lay in lower crude prices due to competition, but it has only instilled more monopoly … it’s still the same large players,” he said. “It is actually possible for prices to go down if oil companies are controlled and made accountable for profiteering.” Oil companies typically resorted to tactics such as replacement-cost pricing, which passed investment risk or capital onto the consumer for their inventory, he said. “That’s why price increases have become drastic even before the crisis.” He also criticised the country’s lack of a national oil industry – the only refinery is controlled by private company Petron – and its reliance on privately run tankers to procure fuel. Tax cuts alternative Wresting back direct control of fuel prices is not a realistic option, according to economists. “Rather than re-regulation, more effective ‘drastic’ measures would focus on mitigating the impact of high prices – such as targeted fuel subsidies, temporary tax relief, transport assistance for vulnerable sectors, and stricter monitoring of pricing behaviour. These measures can cushion consumers without undermining market incentives or long-term supply security,” Asuncion said. Relief mechanisms such as temporary fuel tax suspensions, pre-approved subsidy programmes or expanded support for public transport and food logistics might be a more realistic approach, he added. On Tuesday, the government began rolling out subsidies of 10 pesos per litre to help cushion the impact of price shocks – but advocates fear that such measures may not be enough. “In times of national emergency, stronger and more strategic intervention is both necessary and justified. These may include targeted fuel subsidies for vulnerable sectors, stricter monitoring against profiteering, and the development of buffer mechanisms such as strategic reserves,” Horario said. Calling the amount “absurd”, Rafael said the procedure was also too complicated, as drivers were required to install a government banking app to receive the subsidy. Removing excise and value-added taxes on fuel would be simpler and faster, he argued. “For diesel, taxes alone are around 22 to 25 pesos per litre. A jeepney driver using 30 litres a day pays around 750 pesos daily in taxes. That’s more than the minimum wage. Some economists argue the rich benefit more, but everyone benefits, especially the poor,” he said. “This is simpler than complicated subsidy programmes like fuel discounts through apps.” Tax cuts would come with trade-offs, however. Ricafort warned they would reduce revenue available for social programmes and aid for low-income households. “While price reductions may provide immediate relief, sustaining adequate tax revenues is equally important to ensure continued funding for broader welfare programmes …. any decision to suspend or reduce fuel taxes must be approached with caution,” he said.

Would more drastic measures help Philippines bring down fuel prices?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The Philippines is one of the worst hit by the oil crisis, but its deregulation law prevents the government from capping fuel prices

The Philippines is one of the worst hit by the oil crisis, but its deregulation law prevents the government from capping fuel prices