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Reaction Paper on EO 839

Reaction Paper

EXECUTIVE ORDER NO. 839
By: Vierna Teresa C. Ligan, MBA

DEFINITION AND RATIONALE
Executive Order No. 839, or EO 839, was an executive order signed by President Gloria Macapagal-Arroyo on October 23, 2009 which directs all oil industry firms to freeze the prices of petroleum products throughout Luzon prevailing on the last landfall of Typhoon Pepeng. EO 839 prevented oil companies from increasing their gas pump prices in Luzon and instead, maintained these at October 15 levels. This move is supposedly an affirmation of the companies¶ corporate social responsibility. Since it is an Executive Order, oil companies had no other choice but to follow even if the government had earlier said that compliance to EO 839 will be voluntary.

EO 839 was necessary to help the public, especially those affected by the damages caused by super typhoons Ondoy and Pepeng in Luzon. Prior to the issuance, President Arroyo declared a "state of calamity" throughout Luzon after thousands of people was left devastated by the two typhoons.

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Reaction Paper on EO 839

The government justified the implementation of EO 839, stating that it is in accord with Republic Act 8479, otherwise known as the Downstream Oil Industry Deregulation Act of 1998.

According to Justice Secretary Agnes Devanadera, this ³executive order is in accord with Republic Act 8479, otherwise known as the Downstream Oil Industry Deregulation Act of 1998, which confers upon the Department of Energy the authority to temporarily take over or direct the operations of any person or entity engaged in the industry in time of national emergency, when public interest so requires´1.

PUBLIC STANCE
The declaration of EO 839 alarmed the Philippine business community as the EO itself did not specify any prescription period. Why was it a cause for alarm?

First, there were no consultations with the oil companies and key industry players prior to the issuance of the Executive Order. Companies were caught off-guard with the announcement. It should be noted that oil companies are corporate persons who are directly accountable to their shareholders and thus, they report to these entities whatever profit or loss they get from operating the same. Again, these companies do not operate for charity¶s sake and, if operational losses
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www.sunstar.com.ph/

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Reaction Paper on EO 839

come their way, they can tolerate only so much and not to the point that they continue to operate even if they do not get to recover substantial gains from what they have invested in. Thus, when a point will come that operational losses become unsustainable to them, they will be forced to either stop importing and or stop selling.

Second, there was no specified prescription period as to when Executive Order will last. Since there was no specified prescription period for the order, companies expect to incur some losses for every day of operations. Because of this, consumers [businesses and the public] fear that once the order will be lifted, these oil companies will be forced to recover their losses by increasing the prices of petroleum products in the market. When this happens, consumers will again suffer the consequence.

Third, since EO 839 imposes price controls only in Luzon, there is a possibility that oil companies will subsidize the supply in other regions in order to mitigate their losses. This means since that while oil prices in Luzon are relatively lower, oil companoes can readily increase the prices of oil products in the Visayas and Mindanao areas. This means further that oil companies will be forced to divert the supply to the Visayas and Mindanao areas where gasoline and oil prices will be relatively higher. In effect, consumers will be faced with increasing prices of commodities and other products.

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Reaction Paper on EO 839

Although the government insists that its purpose was to help ease the burden of the public on the adverse effects of super typhoons Ondoy and Pepeng, its issuance was done many days after these typhoons hit Luzon. On the other hand, the absence of the prescription period in the Executive Order further makes it susceptible to whatever changes the government will institute. In effect, oil companies would be faced with difficulty in planning out procurement and managing inventory supply.

MY REACTION/OPINION
After the issuance of Executive Order 839, I immediately entertained the idea of gasoline stations hoarding fuel, but hoarding according to my own definition was to be limited only to Luzon and I was not expecting it to go down to the level of a province like Bohol, which was not affected by the two typhoons. In fact, when gas stations here ran short of gasoline sometime in November, I almost forgot about EO 839. I only got to remember about it when I tried to refuel at one of Tagbilaran¶s gasoline stations, and only to find out that they too, ran out of gasoline. I really had to go to the next station and discovered the long line of vehicles waiting for their turn to refuel. So, a province like Bohol, far from Luzon and never hit by typhoons Ondoy and Pepeng could suffer their consequence, after all.

Thus, the issuance of EO 839 was after all, never futile. Why?

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Reaction Paper on EO 839

First, it was able to mitigate the perceived sudden increase in prices of basic and prime commodities. If not for EO 839, every Juan de la Cruz would blame the calamities as the culprits for increases in the prices of gasoline and fuel. This is practically true because in most instances of oil price hike in the country, prices of basic and prime commodities usually go at a similar pace. ³Kon mosaka ang presyo sa gasoline, hasta presyo sa lokot mosaka´, so goes the famous statement.

Second, government was just doing its role of not failing the people. If there was inaction on the part of the government, chances are throngs of people would march out onto the streets and/or lambast the government as being inutile and not doing anything to abate the problem. In addition, although the issuance of EO 839 was only temporary, it was not meant to jeopardize the operations of oil companies and other industry players. It only asked these companies to take on their corporate social responsibility by helping the poor fare through the crisis that the country had. In a more frank manner, it asked oil companies to µtake a loss´ even for just a few days or weeks and then share this loss to the public if only to help the typhoon victims go through all their tribulations.

On the other hand, the issuance of the same Executive Order posted threats to the entire Philippine business community. The reasons here are quite obvious:

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Reaction Paper on EO 839

a. Supply Concerns Due to foreseen losses of oil companies, majority of oil companies will be forced to cut on importations. Another scenario would be that these companies will temporarily close business, or do some rationing of supply in some areas, since they would not want to sell at a loss. While EO 839 was still in force, there was, in my opinion an artificial shortage of gasoline in the Philippine market and Luzon was most affected by this. From my standpoint, I expected that there will be a surge in supply of gasoline locally, but contrary to my perception then, even Bohol suffered this shortage. On the part of oil companies, directing oil inventories to Visayas and Mindanao seemed to be part of the solution to their problem of recovering losses from operations. The redirection enabled oil companies to recover their losses in Luzon.

b. Investments in oil-intensive industries Albay Governor Joey Salceda expressed his concern that EO 839 will result to ³loss of predictability of the Philippines as an investment destination2.´

Again, the issuance of EO 839 forced me to think that it would result to forced losses in oil sales and thus, pose a discouragement to any investment in the oil sector. I further thought that the rationing of supply will ultimately result to a
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Statement of Albay Gov. Joey Salceda, Economic Adviser to PGMA

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Reaction Paper on EO 839

sudden increase in oil prices such that this would send a negative message to investors. Any investments in the country, whether existing or potential, that are dependent on petroleum will be adversely affected- production and marketing costs will be lessened and thus losses will be incurred. Down the chain, even the modest ³Juan de la Cruz´ will suffer its aftermath in the long run.

However, while the issuance of EO 839 was only temporary, many have commented on the order as illegal because it was not allowed under the oil deregulation law.

In my opinion, the legality of the Executive Order is not to be questioned because under the Philippine Constitution, the ³State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned utility or business affected by public interest.´

BASIS FOR THE LIFTING OF EO 839
Although its issuance was only temporary in nature, the many issues confronting the government regarding this Executive Order has prompted both public and private sectors to call on Her Excellency President Gloria Macapagal-Arroyo for the immediate lifting of the said Executive Order. Thus, taking ground on the study taken by the National Disaster Coordinating Council and the Department of Trade and Industry, Pres. Gloria Macapagal-Arroyo
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Reaction Paper on EO 839

signed Executive Order 845, lifting EO 839. The issuance of EO 845 was made on the basis of the following: 1. While the state of the calamity still exists, the extreme emergency situation which served as the underlying reason for the issuance of Executive Order 839 last October no longer exists. There may still be the physical evidences of the damage caused by super typhoons Ondoy and Pepeng in Luzon, but the lifting of the Executive Order did not mean to forego any activities to rehabilitate the affected areas. Rehabilitation efforts will still and can still continue to ensure that the victims are given appropriate assistance.3

2. The recent price hikes are direct results of the increase in the import costs of the products due to upward movements in international prices, which are set by oil-exporting governments and global demand. The increase in prices of basic and prime commodities can not just be accounted for by super typhoons Ondoy and Pepeng. Long before the calamity struck Luzon, prices of petroleum products and prime commodities were expected to increase due to increasing prices in the global market4.

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Student¶s reaction 1 Student¶s reaction 2

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Reaction Paper on EO 839

3. Oil-industry representatives initiated discussions and meetings with the Departments of Energy [DOE] and the Department of Justice [DOJ] in order to find ways to secure availability of petroleum products at fair prices in the affected parts of Luzon. The meetings clearly show that key industry players have taken on their corporate social responsibility to ensure that the community will largely benefit from their businesses. Accordingly, oil companies have been demonstrating their full support to the victims of the calamity in Luzon. Thus, the sudden imposition of EO 839 has seriously weakened the positive outcomes of these meetings5.

The above recommendations were strongly supported by the oil companies, transport sector, the DOJ Taskforce, DTI and other public and private sector stakeholders.

MY REACTION

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Student¶s reaction 3

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