IN AN EFFORT TO BLUNT PRESSURE FROM the oil companies to lift Executive Order 839 imposing a freeze on prices of petroleum products in Luzon, the government took the offensive with the warning by Energy Secretary Angelo Reyes on Monday that the country’s inventory of the most used finished products—diesel and gasoline—was running low and good only for 13 days. Although Reyes did not directly accuse the oil companies of creating an artificial shortage to force the government to bend to their pressure, he said the inventory had dwindled after oil firms that do not refine crude in the country halted importation of gasoline and diesel as a result of the price freeze.

In the seesaw battle for public opinion between the government and the oil companies, the government was provoked to open a new front to make the companies look bad after retailers of liquefied petroleum gas (LPG), which is used for cooking in nearly all homes, threatened that they may be forced to stop selling cooking oil if the government continued to maintain the price freeze until next month. The retailers said they were opposing the freeze because they expected another increase in prices of international contracts by $30 to $40 per metric ton in December because of the large demand for cooking fuel during the Christmas season.

But Reyes made a weak case for the government by creating a potential panic situation. He, in fact, undermined the government’s case by saying that imports of oil products had dropped as a result of the price freeze. “You cannot force private corporation to sell at a loss indefinitely,” Reyes said, echoing the position of the oil companies, which claim they have been incurring losses because of the price freeze.

This argument should have not come from the energy secretary, giving aid and comfort to the oil companies. It should have been argued by the oil companies and their lawyers. Moreover, whether or not the oil companies are losing is a contentious issue that has not been established by a competent body.

While warning that that the inventory of oil products had dropped to less than two weeks from the usual three weeks, Reyes tried to reassure that there was no reason to panic. “Don’t panic,” he said. “Government will not allow shortages. We don’t even have to talk about contingencies, because we’re not in a problem situation yet.”

Reyes said it was against the law of survival to force private companies to sell at a loss. He said his hands were tied because of the Oil Deregulation Law of 1998. He did not spell out the steps the government would take to prevent oil companies from stopping their imports.

According to oil industry sources, Reyes was opposed to EO 893. He was reportedly not consulted, and was bypassed during its drafting, although his department has primary responsibility for the energy sector.

Since the enactment of the Oil Deregulation Law, this is the first time a president has issued an executive order directing the freezing of the oil prices, provoking a showdown with the oil industry in the country that is dependent for more than 95 percent of its oil needs on foreign sources. The Philippine oil industry was one of the strategic industries deregulated during the administration of President Fidel V. Ramos. President Macapagal-Arroyo is the first president to exercise her price regulatory powers on the strength of a claim that Luzon island is in a state of national calamity after it was devastated by two recent typhoons.

Executive Order 839 came as a shock to the oil companies, which are now asking whether the oil sector is operating under a regime of deregulation. The oil companies have asked a Makati regional trial court to lift the price freeze, putting that issue to judicial resolution.

Concerns were expressed in the oil industry over how long the impasse would last without compromising the dwindling inventory of oil products should the oil companies close the tap for the flow of oil imports or should the government step up punitive measures. Following the meetings between administration officials and industry players, there were hints of compromise and of the government softening its stand on the duration of the freeze. Government officials have pointed out that the state of calamity was only temporary, and some officials hinted that the price freeze would be lifted in selected areas.

The government appeared to have temporarily gained favor with public opinion on the price freeze and roll back, against the economic pressure mounted by the oil companies. But how long the government can hold the lid on the fuel prices is a matter of conjecture. A squeeze by the oil companies and their international principals or a even a short-term maintenance of the oil price freeze could cause long-term repercussions on the foreign investment climate in the country. The government, which is suffering from rock-bottom public approval ratings for its performance, is gaining short-term public favor by presenting itself as protecting the public interest through price roll backs. But when the crunch of fuel scarcity and high prices comes, the tide of public opinion will change and the government will become the villain.

The government is playing with fire.

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