House LEAD Council flags ‘cartel-like’ risks in local fuel pricing amid weekly adjustment system

Convened under the direction of Speaker Faustino “Bojie” G. Dy III, the House’s Legislative Energy Action Development (LEAD) Council on Wednesday put a spotlight on the country’s fuel pricing system, with House Ways and Means Committee Chair and Marikina City Rep. Miro Quimbo warning that the longstanding weekly adjustment scheme may be fostering “cartelization” in a highly concentrated petroleum market, as global oil prices remain volatile due to tensions in the Middle East.

Quimbo raised the concern during his interpellation with Department of Economy, Planning and Development Secretary Arsenio Balisacan, saying the Department of Energy’s (DOE) synchronized weekly price adjustments may be weakening competition instead of promoting it.

Under the current system, oil firms adjust prices every Tuesday based on global oil movements in the previous week, with prices recently surging due to the Middle East crisis. Companies typically announce price changes ahead of implementation, allowing competitors to see and match each other’s pricing.

“So, lastly, Secretary, can you tell us, what is your opinion on this every Tuesday adjustment that the DOE actually mandates? Do you think it prevents, or does it actually engender, for lack of a better word, the elimination of competition?” Quimbo asked.

Balisacan said industries with only a few dominant players are more prone to coordination.

“In Econ 101, Mr. Chair, when there are very few players in the markets, and you ask these players, government may be asking them to cooperate, to coordinate, they are actually asking a cartel,” he said.

Asked to clarify, Balisacan explained that coordination risks are inherent in such markets.

“What we do know is that the industry is a highly concentrated industry. There are only a few players. And so in Economics 101, you know that it’s easier to coordinate when there are only very few big players. There are opportunities for cartel-like behavior, just like what they have in OPEC (Organization of the Petroleum Exporting Countries),” Balisacan said.

Balisacan added that structured or synchronized pricing environments can reinforce such behavior.

“If in government, for example, if you are asking the players in the market to come to a room, agree on a price, what do you have? That’s how they do in the cartel,” he said.

Quimbo warned that the current system may be producing that exact effect, with firms moving together instead of competing.

“The intention is good on the part of the Department of Energy to prevent volatility in the market. But the purpose is good, but I think the effect is we are in effect promoting a cartelization, and it is government itself,” he said.

“Gobyerno mismo ang nagbibigay ng presyo at nag-cre-create ng environment para magkulot itong mga oil companies. Kaya hindi nagkakahiwa-hiwalay ang presyo. Kasi nakikita nila lahat,” Quimbo added.

Balisacan stressed he was not making a conclusion that a cartel exists and instead called for closer scrutiny by regulators, particularly the Philippine Competition Commission (PCC) and the Energy Regulatory Commission (ERC).

“Mr. Chair, I’m not saying that there is a cartel, but I think that our regulatory agencies and in particular, PCC and ERC, should work together to investigate,” he said.

Quimbo presided over the first hearing of the House’s LEAD Council, which brings together 13 committees tasked with coordinating immediate relief measures and long-term reforms to mitigate the impact of global oil price shock on Filipinos. (RM)