Monday, March 26, 2012

To the Nincompoops Who Keep Asking President Noynoy Aquino to Lower Fuel Prices

Unless you believe President Noynoy Aquino is truly heaven sent and can command the heavens to rain down oil on the Philippines, asking him to do something to lower fuel prices may be too much for the powers of the Son of Cory and Ninoy.

Here's the thing that people are missing when they think that the Aquino Administration or any administration can or will lower fuel prices if they hold rallies or hold their breath till they are blue in the face.

One. The Philippines DOES NOT PRODUCE OIL that can be turned into gasoline or regular diesel.

Two. Oil producing countries sell oil and set the price for oil based on prevailing market conditions, estimated supply and projections on future demand.

Three. The Philippines has to buy the oil or fuel refined from the oil at a price dictated by companies in oil producing countries.

Four. The Philippines cannot dictate the price of oil or fuel since it does not have a leverage in terms of being a big buyer or geo-political clout that can affect the oil industry of the world.

Five. The only way to lower the price of oil is to have government interfere with market forces by subsidizing the price of oil -- this means shelling out money so that fuel companies in the Philippines can sell it at one or two pesos less.  But the problem is, fuel companies do not show exactly how they price their product and they can jack up their prices without clearly showing why it is necessary.  So, they can claim an upward price adjustment is necessary and the government essentially must decide whether to increase subsidies to maintain a level fuel price or allow the price hike to take place, while still subsidizing fuel prices.  

Subsidies for fuel and other things are taken from the taxes collected from private individuals and companies.  So instead of people and businesses having more money to put away, invest, or spend in ways that will earn more money thereby enabling them to cope with high fuel prices, the money is taken away from them by government who loses a large amount of the tax money to corruption and inefficiency.

Six. One way to cut fuel prices by 12 percent is to lower or do away completely with the Value Added Tax on fuel and that may mean less funds for government services -- not that people would actually feel it because the government, as I've said, is inefficient as well as corrupt.

The only way to lower the price of fuel, fossil fuel, is to curb demand by shifting to lower priced substitutes. That means using less fossil fuel through a number of means:

Making public transportation more efficient.  Ride bus, save gas.  But only if buses come at a regular schedule and are not over-crowded or hot.

Synchronizing working hours according to a staggered schedule.  This might entail classifying various employees into different classes and figuring out when they are actually needed on-site.  The idea behind this is to control the demand for transportation and making peak traffic loads predictable. Laborers in construction or manufacturing might be made to report earlier since they are the more numerous.  Executives should come at a later schedule.  Certain types of professionals (those involved in medicine, for example) can be made exempt.

Allow telecommuting or working at home.  If you don't have to travel to work, you don't need to use a car or ride on public transport, thereby reducing the demand for fuel.

Establish Vehicle Free Zones within Cities.  I've actually seen executives in Makati drive their car or take a cab from one building to another building just two blocks away.  If you had a Vehicle Free Zone in Makati CBD, you'd eliminate a lot of pollution, healthier executives who will have to walk in between snack filled meetings, and again, a lesser demand for fuel.

Step up the use of renewable fuels.  Right now, gasoline is cut with 10 percent ethanol and diesel is cut with 5 percent bio-diesel.  In Brazil, there are cars running on 100% ethanol.  In the US and Europe, diesel engines are run on 100 percent UCO biodiesel. So, if you can imagine the entire Philippines using 100 percent ethanol or 100 percent UCO biodiesel, we might be practically impervious to fossil fuel price hikes.

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