TRUST AND ANTITRUST

TRUST AND ANTITRUST Published Mindanao Post 30 Dec 1998

An industry is concentrated, according to the U.S. Federal Trade Commission standards, if four or fewer firms control 40% of the market. By 1982 the U.S. photovoltaic industry (solar collectors) was controlled by three firms holding 79% of the market. All are oil companies (enhancing the suspicion that they might threaten the oil business).

In comparison, the Philippine oil industry is under 99% control and dominance of 3 companies. Superconcentration occurred two decades back when a fourth oil firm pulled out of the country. Deregulation has so far not effected the dilution expected. The entry of British Petroleum may break the lull with its plan to build a naphtha cracker plant by 2003.

But in a related development, a proposal to pass an antitrust law to prevent monopoly in telecommunications was made by DOTC undersecretary Lichauco. Should the antitrust move catch on and business become anti-cartel forever, consumers may yet get relief in the rice, sugar, and coconut industries.

Today, Nov 23, 2007, nine years after the foregoing was written, a sudden awakening is spawned by the threat of global oil prices teetering at the brink of $100 per barrel. Rudely awakened and in surly mood were Senators Manuel Roxas and Juan Ponce Enrile who initiated moves for passage of an anti-trust law aimed to discipline companies engaged in anti-competitive behavior such as collusion and other restrictions to free trade, particularly in the oil industry.

Senator Roxas, chairman of the Senate trade and commerce committee, designated Enrile to head a sub-committee to draft an anti-trust law, Enrile having pushed for an anti-trust law and the author of a similar measure filed but not approved in the 13th and 14th Congress. Roxas envisions a stronger anti-trust legislation that, aside from the scrutiny powers on company books, will include provisions to sanction abusers.

The Senate committee on trade and commerce met with trade officials, representatives of oil companies, transport groups and consumer groups to determine why there remains a prevailing rise in the prices of fuel when the peso has appreciated versus the US dollar. Energy Secretary Angelo Reyes raised no objection to proposals to review the Oil Deregulation Law but stressed the need for Congress to appropriate funds entailed by regulation subsidies to be given to the oil companies.

It is not only the Oil Deregulation Law that requires antitrust legislation and amended but also the cement and pharmaceutical industries, and the Electric Power Industry Reform Act (EPIRA). A vital amendment to the EPIRA is the restoration of the ban on cross ownership when a power distribution company also owns, through sister companies, generating plants. Cross ownership gives the linked corporations advantages over their competitors. They can do business with each other at higher rates, to the detriment of consumers.

On medicine, prices are high for lack of competition among the pharmaceutical companies (called Big Pharma). Without an anti-trust law to curtail collusion, the foreign companies have a cartel that fixes prices for maximum profit after public relations expense lobbying and gifting the medical community. The rapacity has spilled over from medical drugs to synthetic foods, the so-called nutraceauticals, targeting babies, but has not diminished Big Pharma’s assault on breast-feeding. The cheaper medicines bill will nibble a bit on the cartel, just a teeny weenie bit.

The cement cartel must also be dismantled. Most cement firms are owned by big foreign companies who can fix prices at will, taking advantage of the heavily taxed cement imports (that also encourages smuggling). The high prices of cement drag down the construction industry and taxpayer-paid infrastructure programs.

On an Oil Deregulation Law, the intent of the deregulation law was to make competition force prices down, but the petite new players merely buy their finished products from the Big Three, presumably at volume discount rate, and sell them at a markedup rate to consumers. An anti-trust proviso must define this practice as collusion.

The United States anti-trust laws work because they are enforced. In the local scene, even if an Enrile-Roxas anti-trust law is passed, it would create another whale of a problem --- where to find honest implementors

Senator Zubiri, one of the several authors of the Renewable Energy Bill, is drumming up support with some hype. The bill encourages the use of agricultural crops like sugarcane, coconut, corn, cassava and “tuba-tuba” [jathropa] for ethanol and cocodiesel. “The $100 per barrel forecast may be breached even before December this year,” he said. “It will push up consumer prices and depress job generation. Households pay bigger power rates, rising prices of food and other basic goods, factories postpone expansion plans or lay off workers and government agencies providing health, education and administrative services are hampered as they are heavily dependent on continuous supply of power.”

If the Renewable Energy Bill prospers, the Philippines may be the second country after Brazil that will no longer be dependent on imported fuel, being the world’s second largest producer of geothermal energy and producing about 50 percent of our renewable energy from hydropower. We have abundant sunlight for solar power most of the year, locations with strong winds for wind power, tidal currents for marine power, lacking just the funds and technology to harness them. Biofuels technology crude but workable is on hand.

Unfortunately this nation has a crippling handicap --- the leadership is afflicted with myopic vision syndrome.

Back to the escalating price of oil, the Executive has yet to draw up an agenda to address holistically the issue of energy as an urgent priority in the economic program of NEDA. It is not enough to focus on dismantling cartels or on the Renewable Energy Bill that would lessen our dependence on non-renewable fossil fuels like oil and coal. The immediate response to the crisis must be to recognize that the crisis has the potential to lead to disaster with ramifications affecting not just economic stability but also disruptive of social and political stability. The first crucial step is conservation of energy. And this giant step needs public support devoid of politics, and in return officialdom spurns politics (like asking the baby not to cry). This will be the topic of a future blog (energy conservation, not cry babies).