Petropolitik, Sapian and China - Eleventh in a Continuing Series

Let’s talk about a commodity not related to gas prices, but suddenly related to it just because President Bush said that America is addicted to gas. Bush the Elder once said that catsup is a vegetable. So, what the heck. My story today is about addiction to tobacco. I’m reminded of this topic as I started reading Christopher Buckley’s book entitled, Thank You For Smoking. That book is a satirical comedy on the machinations of Big Tobacco’s chief spokesman, Nick Naylor, who spins on behalf of cigarettes while trying hard to remain as a role model for his son. It also detailed high-level lobby in US politics, an Iron Triangle of lobbyists, members of US Congress and officials Federal agencies, as tobacco lobby fought head-on against the health establishment.

On FVR’s first day in office, the Palace Household, an office that’s, well, exactly managing the Palace household, had been taken over by the new administration. At its helm was Ambassador Lolita Haney, FVR’s aunt. Her gunner was Mrs. Paynor, wife of incoming protocol officer, and later Ambassador of Palace Protocol, Marciano Paynor. That morning, we have been disappointedly surprised. Mrs. Paynor had told us point blank that no cigarette would ever be lit inside the palace. The smoke deteriorates national treasures by Amorsolo, Juan Luna and other great Filipino masters that were hanging all over the palace walls. She added that even camera flashes ruin them. That’s ironic because FVR is aptly known as Tabako. Later on, we would equally be disappointed that our favorite caterers, Jade Vine, Ria’s Cuisine and Makati Skyline, would, from that day forward, be replaced by an endless fare of tuna sandwich and, oh well, tuna sandwich. We would later regularly see Century Tuna delivery trucks. FVR had a problem with cholesterol and his carotid would later be operated on. After a few months serving the FVR Administration, I never ate another tuna sandwich for years, until I got tired of pink salmon and discovered white albacore.

We had a smoking club under the Cory Administration. Our president was Ruben D. Torres, former Secretary of Labor and later, Executive Secretary. The membership spanned through different levels of the hierarchy. At that time, there were lead crystal ash trays all over, and as long as it does not get into the eyes of non-smokers, you’re fine. Just sit in the corner and light up, the high velocity air flow and filtration system will take care of it. Our club shared cigarettes and lighters, exchanged palace news, and bartered favors.

But it had been different under FVR since the only ash trays inside the palace are the ones for FVR’s chewed up tobacco. We would now have to go out through very heavy bullet- proof French doors, you have to lean your weight forward, into the patio or a terrace. Getting in would be more cumbersome because some doors lock you out. You have to either hope somebody inside would look outside and beg you way in, or go back to the entrance and through guards and a maze of hallways and stairs to be back to where you started. But life went on.

Through two administrations, smoking time for VIPs and staff alike took its unspoken toll on many occasions. Sometimes, the convoy’s itinerary had to be planned to have a smoking whistle stop. Venues of programs, locations of stage, riders in a particular vehicle of the convoy, and VIP holding rooms are often influenced by staff and VIPs’ smoking habits. Central Bank’s Falcon jet had to wait in Mactan International Airport because we could not find a cigarette vendor. We had to get a smoking holding room in Sarabia Manor (Iloilo) for Mrs. Ramos who was stressed about the number of people who showed up in a supposedly very private lunch with her family in La Paz. Lai Torres explained to her, “You are the First Lady now, so they are all your relatives suddenly.”

The arrival of Estrada Administration did not change the FVR “no smoking” policy even if the incoming Administration itself had its smoking club. On the morning of Estrada Inauguration, as I parked my tora-tora alongside the gleaming rides of national elites, I saw Triple V and more than half a dozen aluminum-clad catering trucks! Goodbye to one century of Century Tuna. On that day of Estrada Inauguration, like I did for the Ramos Inauguration, I would be the conductor of the bus shuttling incoming Cabinet members from the landing area to Palace luncheon, to Quirino Granstand for the Inaugural Address, to a Grandstand mini-reception, and back to the Palace for the first Cabinet Meeting, and the Inaugural Ball. Upon arrival from the Presidential oath taking in Barasoain Church, Erap went straight to the Drawing Room to try the President’s Desk. Then lunch was served. As he was walking out from the President’s Office for lunch, a giant chandelier, wires shorted out and cut the chains, fell down, missing him and his wife by a few feet. We were outside the office door waiting to hail to the new chief when we heard a big thud. Thud! No one will ever know whether it was a premonition of what will be a failed presidency, or the revolting spirits of the presidents past, or both.

But lunch was super, all the king’s best caterers and finest china for the first day of the newest presidency. It was exclusive for 300 people composed of the Estrada Family, very close friends and political allies, and yes, acolytes like us. Mostly, they were familiar faces of the silver screen, business and politics.

After lunch, we congregated to our usual smoking time. New smoking faces have been directed to the only and the best smoking spot by by the Pasig River. Then there was this short, balding, dark man who did not look familiar; he stood next to me asking about palace life. He was generally nice but curt sometimes. He told me he is an incoming Undersecretary of Tourism. So I politely asked why I never saw him in company of the elites, or at least, the power circles of Tourism Department. He said that he is from Jamindan, Capiz but he lived in the States for decades; has two houses there, in fact. But Erap, a close friend, had asked him to come home and help. So, you are from Jamindan, I’m from Sapian. Yes, he said his Dad was a mayor, and yes, he knows some Orilloses and Hondrados. Well, the only person I know from Jamindan is the late Nong Boy Advincula, husband of Nang Venus. He said he knows the Advinculas but he is not in a hurry to go home as yet because he had lots of work waiting for him. I did not ask for his name, but at the Cabinet meeting that day, I surmised from the list that his name was Orestes Ricaforte. I never saw him again. Never heard anything until two years later. After the downfall of Erap, I saw on the news that his wife, Yolanda Ricaforte, was the auditor of Erap’s jueteng money. Deng! His work waiting for him was counting Erap’s money. Had I known then, I should have volunteered to work under him and would have already paid up all my debts to Gee Ann Ballie Tupaz and NN Alvarez!

Anyway, at the second Erap Cabinet Meeting, our smoking club continued to expand. A new member was Undersecretary Fely Villareal, known to Mambusaonons as “the Madre,” daughter of former Speaker Cornerlio Villareal, Sr., who even ran for mayor in Mambusao. At that time, she was GMA’s deputy in Department of Social Services and Development. We shared cigarettes and lights, and assigned someone as a look out in case GMA suddenly calls her. GMA kept Undersecretary Villareal very busy and she had to put out halfway-lit cigarettes. What a waste.

I hoped to see them both again at the next meetings. But Erap did not convene the Cabinet for many months. On that second meeting, he said that since he was the President, he would not use the scripts we prepared. Neither would the agenda be as long as FVR’s. Whoever had issues among Cabinet would have to resolve it themselves and he would sign anything. He just asked us to enjoy the Manila Hotel catered lunch, which of course, was a pleasant surprise for us to be free from tedious minutes and the scourge of Century Tuna. The third Erap meeting and the last Cabinet meeting I will ever attend will be a Manila Bay cruise aboard the newly refitted BRP “Ang Pangulo.”

Petropolitik, Sapian and China - Sixth in a Continuing Series

Another way to revisit the saga of Sapian, China and oil crisis is tracing the thread of Philippine petroleum deregulation. Fidel V. Ramos (FVR) pushed for the enactment of Republic Act 8180, the Downstream Oil Industry Deregulation Act of 1996, to promote a more competitive market and prices by allowing the entry of “small” oil players to the market monopolized by the so-called Big Three, namely, Pilipinas Shell Petroleum, Caltex Philippines Inc. and Petron Inc. This involves the removal of the government subsidy to oil prices, called the Oil Price Stabilization Fund, which provided a cushion to oil price increases. In 1999, a new oil deregulation law (RA 8479) was enacted to pave the way for the full deregulation of the oil industry.

During World War II, many countries heavily regulated industries and nationalized critical industries (e.g., petroleum, coal mines, steel mills etc.) to provide maximum support and efficient use of resources for war efforts. After the war, many countries continued or expanded controls on industries to rebuild their war-ravaged economies, and well into the 70s. By the 80s, U.K. Prime Minister Margaret Thatcher - plagued by paralyzing strikes, mismanagement, and bankruptcy - started to privatize government companies. In economic circles, it was called Thatcherism. In the U.S., President Ronald Reagan tried to relax government control on businesses, called Reaganomics. Both trends lean toward Keynesian economics. A very influential 20th Century economist, John Maynard Keynes theorized that government should use its power sparingly at the macro-economic level to regulate (e.g., interest rates, use of reserves etc.) but let the private sector and market forces try to equalize itself. http://en.wikipedia.org/wiki/Keynesian_economics

Along these lines U.S. President Bill Clinton, FVR and other leaders promoted a book by David Osborne and Ted Gaebler, entitled, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. The authors looked into model governments efficiently run like corporations, with performance-based budget, partnership with the private sector, and people empowerment themes. It called for leveling of the playing field, deregulation, decentralization, devolution, and liberalization, in all aspects of government, politics and the economy. From Washington, to Europe, to Tokyo, a chorus of international organizations told Cory and FVR to pursue these goals. Hence, it was institutionalized in FVR’s Philippines 2000. http://govinfo.library.unt.edu/npr/index.htm

Under this philosophy, started by Cory but staunchly implemented by FVR, the bureaucracy worked double time to deregulate, decentralize, and devolve powers of governance. Among the first tangible result of these is the Local Government Code
- to the perpetual chagrin of my mother and Nono Varon’s parents (it’s a relief they are all in the United States now!) - that included the devolution of the Department of Health’s Rural Health Units (RHUs) to local government units. There were persistent rumors that RHUs will be renationalized, but early on I asked former Health Secretary Juan Flavier (now, Senator) and he told me to tell my mother to change career because it’s not going to happen. In theory, local governments should have more control over their local affairs and would be able to prioritize their policies and fine-tune their programs according to local needs.

Another example is today’s proliferation of cell phones. PLDT monopoly was broken by giving away franchises to any company able to install 5,000 lines, can apply for telephone franchise anywhere in the Philippines. Many leapfrogged with infinite cell lines, so you now have a galaxy of cell service providers. This also was true with Cable TV providers and a host of other telecommunications sub-sectors. Philippine Airlines franchise monopoly was also broken. Now, passengers are no longer at the mercy of PAL. Anyone who has a plane, compliant with all BOT regulations, could apply for an air franchise anywhere in the Philippines. Then you have BOT (Build-Operate-Transfer, Build-Transfer-Operate, Build-Own-Operate etc.) alphabet schemes, which allowed building of dozens of giga-wattage power plants by Hopewell Holdings, Enron, etc. worth billions of dollars. The caveat, contracts for 50 years for guaranteed power purchase by the National Power Corporation. This wiped out the brown outs overnight, particularly when power grids throughout the country have been interconnected. Then, you have your Skyway, North Luzon Expressway, MRT and many others. Under the general theme, base lands, like the Fort Bonifacio area, have been opened to joint ventures with the private sector.

For a moment, the Philippines was referred to as one of the Tiger Cubs of Asia.

Petropolitik, Sapian and China - Eighth in a Continuing Series

First, there were faults in the assumptions. Proponents say downstream deregulation will make the economy stronger and better because it will, as it should, be left upon a free market to operate. Market is said to be a self-equalizing force; that all things being equal, profit interests and buyer interest will synthesize into general welfare.  So the theory goes. But opponents argue that since there is no upstream industry to guarantee a free play of supply and prices for downstream industries, deregulation has no net positive effect because downstream entrepreneurs are still dependent on Big Three for supply. Hence, there is no real competition. Proponents believed that as soon as deregulation is announced, oil companies around the world would race to our doorsteps. But our announcements, repeated announcements, have been met by a stony silence. The reason, some say, is that giant oil companies, with their rules of engagement and protocol, would not go after each other’s throat because, as traditional economics always say, genuine competition lowers prices; and lowered mark-up prices reduces profitability. By and large, they share not only the same security and political concerns, but also the same oil wells, pipelines, refineries, transshipment facilities, tankers, borrow each others’ jets, etc. Early on, critics warned that if there would be no new players the size of the Big Three, deregulation is doomed to fail. And there were none.

Another result of deregulation is the removal of Oil Price Stabilization Fund (OPSF). OPSF is an import levy instituted by Marcos and was approximately P1.25/liter in 1997. It was placed on reserve as safety net to fend ill effects of escalating gas prices. When there was sudden jolt in gas prices to soften impact to consumers, government either totally covered (subsidized) the difference in cost, or spread costs over a period of time (credit). Even at the months before deregulation, OPSF mechanism had been working very hard to stabilize unpredictable gas prices. OPSF was typically used for Forward Cost Cover (FCC) that absorbed for consumers the fluctuating price difference three months in advance. Former Energy Secretary Francisco Viray would always complain to the Cabinet how hard it was for OPSF to keep up with increasing world prices. For over three years, I was the energy “expert” on FVR Cabinet minutes. My supervisor, Director Jess Albar from a prominent Roxas City family, knowing my interests, invariably gave me all Cabinet items on energy, until the Cabinet no longer talked any OPSF or FCC.

On top of deregulation, privatization was another scourge to Philippine petroleum industry. Petron, a government petroleum company, was sold to Aramco. At that point, government had fully abdicated its last measure of influence on domestic oil prices.  Ownership of Petron had been good oil price leverage; profitability had been shoved aside in favor of national welfare. Petron saturated market with lower priced gas to upset upward pressure on gas prices. So, losing Petron ownership and having no OPSF safety net, and none of expected downstream competition, government is now left with the last front-end control. To tax or not to tax.

If we are already selling tax-free oil, and China would pay even more money for even more gas supply, we would be in big trouble. How many of us would be willing to pay P90/liter even if it’s tax-free?

Petropolitik, Sapian and China - Fifth in a Continuing Series

GATT/WTO tends to harness comparative advantage of countries. Our comparative advantage is to supply many of China’s fisheries and agro-industrial needs. Even with the perceived over-population in the urban centers, the Philippines still has wide open spaces and lands waiting to be used for agriculture. Nueva Ecija has some of the vast land reserves and produces some of the largest rice per capita.

I could not describe our vast land resources without remembering Palayan City in Nueva Ecija. After the eruption of Mt. Pinatubo, a few thousand Aetas from Zambales have been relocated to a 200-acre strip that was a part of Fort Magsaysay military reservation. The project proponent and our hospitable host, the Fajardo family, was working to secure Cory’s proclamation to release the 200-acre strip from base reservations for aeatas and other poor families to live in and farm. The wife of then Palayan Mayor Rico Fajardo (later, a congressman), Leonora (later, the mayor replacing him), is from Mambusao. Their red-tile roofed white mansion “complex” - complete with a guard house that had a weapons arsenal, a power plant, a 6-room servants bungalow, and a “motor pool” garage - looks over hectares upon hectares of lands planted to rice, coffee and mango as far as the eyes can see. Half of the town was probably their tenants or servants. Despite that, I was amazed how down-to-earth a Mambusaonon Leonora Fajardo is - really nice; and we talked in Bisaya. She told me that Rico owned the defunct F&N Shipping Company; and she, having just arrived from Mambusao at that time, was vending lugaw in a well-attended carinderia near F&N’s gate in North Harbor. Coming to work every morning, Rico noticed the hardworking, business-oriented Tisay, so he started to have lugaw himself. Then they fell in love, got married, and he bought her Tasa de Oro as a gift, a famous American-owned restaurant in Escolta - when Escolta was still the Ayala Avenue. When we stayed in their house, their daughter, Lorelie, was then in high school; now, she is the youngest city mayor in the Philippines. Anyway, led by my former boss Cabinet Secretary Chito Sobrepena (now Metrobank Foundation President), together with then Col. Edgardo Aglipay (later CO/NCRDC and PNP Chief), I supported staff work to get Cory’s proclamation two years later. But even after the 200-hectare strip, Fort Magsaysay military reservation has still several thousand hectares that can be made into a productive agricultural enterprise.

We have most resources, except capital and political will, to organize successful agro-enterprises. The Philippines pioneered hybrid rice in Southeast Asia since the Green Revolution of the 60s. International Rice Research Institute (IRRI) in Los Banos, Laguna, which was initially funded by the Rockefeller Foundation and operated under the auspices of the United Nations, produced rice that Thailand, Vietnam and other neighboring countries now profitably export even to us. The University of the Philippines (UPLB), our agro-R&D center, has many developed agro-industrial technologies that are not applied in the field.

Anyway, to Filipinize rice research (e.g., to develop strains requiring less fertilizer, resistant to pests and drought, etc.), we organized our own Philippine Rice Research Institute (PhilRice) in Munoz, Nueva Ecija with multi-million dollar assistance from Japan International Cooperation Agency (JICA). I was part of Cory’s advance party to inaugurate PhilRice, so we planned a program that included a ground-breaking of a Technology Livelihood Resource Center (TLRC) project, a farmers’ cooperative rice post-harvest facility the size of NFA, in Cabiao, Nueva Ecija. I was the point-person in the Cabiao program - we decided that the stage be built in the middle of a ricefield and Cory’s helicopter would land just behind it. In the eve of Cory’s arrival, we noticed that the field was cracked and dry. So we asked local engineers to build a two-foot wide plywood walkway from the landing area to the stage. Workers worked late and woke up hardware stores in Cabanatuan. There was the walkway the next morning, stronger than the best Parola, Tondo, walkway Nang Novie Pajarillo-Macam, Manila Vice-Mayor Danny Lacuna and I walked on in one of Lacuna’s winning campaign sorties. Then Cory’s chopper and eight other helicopters landed. After the dust cleared, Cory got off, missed the plank by an inch and sprained her left foot. Major Bodet Honrado, Cory’s Aide-de-Camp whose roots is from Sapian, was furious. But we cannot be blamed for it - we did our plank. It was the pilot’s error for failing to get the chopper as close as possible; and the flight engineer neither got the stairs on the plank nor warned Cory about the gap. Anyway, the pained President went on with program, flew to Munoz and inaugurated PhilRice in a wheel chair. Her appointments have been cancelled for the next two days and she had to wear a cast for the next three weeks.

Petropolitik, Sapian and China - Fourth in a Continuing Series

Cory and Ramos Cabinet deliberations on GATT/WTO involved many economic concepts that Ms. Flores laid the foundations for. GATT/WTO was discussed on my first attendance in a Cory Cabinet Meeting, and Jose Concepcion (JoeCon), former Trade and Industry Sectary in Cory Cabinet, owner of Condura, Cosmos Bottling, General Milling, etc., tripped on my right foot and almost crashed on former Defense Secretary Renato De Villa. I was terrified, my first Cabinet and I caused an accident. But people I sat next to assured me that it was not my fault - Lucille Peralta (now Ortille, and Director General of the Cabinet Coordinating Committee on Housing and Urban Planning), also from Roxas City, and Mary Ann Z. Fernandez (now Assistant Commissioner of Civil Service Commission) told me JoeCon was looking up on screen while briskly walking down the hall.  Corridor of power is always cramped, so seats around the Cabinet Meetings are always crowded. Seating was arranged in two rings - the inner circle which is the president and cabinet members, and the outer circle composed of lesser bishops and acolytes like myself. State Dining Room is cold and dark when giant Swarovski chandeliers are dimmed for PowerPoints. Only Imelda’s sconces would light the old rose velvet carpet while people seated on the outer circle would obstruct most steps of the way. Talk about cordon sanitaire.

Anyway, this was not the case in the brightly lit and well-appointed National Economic Development Authority (NEDA) Board Room in Pasig, thanks to Toto “Tayho” Guijaro. The president and Cabinet also convene as Joint Cabinet-NEDA Board a few times a year to update the National Development Plan, and they meet in Pasig once in a while. In NEDA sa Pasig, I always see Toto Tayho because he does the electro-systems for NEDA Board Sub-Committee on Human Resources and NEDA Board/Cabinet that I both attend. I’m sure, Toto Tayho, bombarded by economics everyday, would remember the lectures of Ms. Flores. Our batch was the first to graduate under the nationalized high school. Unfortunately, it was the last batch Ms. Flores would teach. That very next school year, she moved to then Panay State Polytechnic College (PSPC). Lucky them.

Further exploration on China’s economic boom needs us to look into just a little bit of GATT and history. Ms. Flores taught us that Industrial Revolution, which started in Britain between late 1700s and early 1800s, was characterized by increased production due to mechanization (e.g., steam engines - factories and railways). Mechanization allowed mass production that created surplus products. Countries needed to sell surplus products to other countries (dumping). But other countries have the same industries and were creating the same products. So, each country tried to protect its domestic industries, and a period called Protectionist Era ensued. Nations established trade barriers, raised import taxes and tariffs, to make it very difficult to import and export outside of national boundaries. Trade wars ensued - dumping of surpluses to, or raising tariffs against unfriendly nations. Countries like Britain, U.S. and France (Allied) were lucky. Their colonies acted both as exclusive markets for their surpluses and source of cheap raw materials. Other industrializing countries like Japan, Italy and Germany (Axis) did not have colonies. Axis powers had to either have colonies or just fade away. Many summed up World War II as an attempt by Axis powers to re-divide the world and gain colonies for themselves. At that time, China was an agrarian economy trying to survive its own Cultural Revolution.

In 1944, GATT, a trade treaty involving many nations, was established. Its purpose was to facilitate free trade by encouraging member-nations to reduce tariffs and remove trade barriers. This would avoid trade wars and the need to maintain colonies (i.e., the Philippines was then allowed to become independent). Under GATT, each one had a list of sectors, industries or specific products they want to open to international competition. Taxes for those specified sectors or products are either lowered significantly or removed altogether. Since then, GATT worked on the sidelines until the emergence of European Community in the late ’80s. At that time, trade blocs, treaties involving many nations, in many regions of the world started to proliferate. By early 90s, there were APEC, Uruguayan Round, NAFTA, AFTA, BIMP/EAGA and dozens others. Trade blocs reminded some economists of Protectionist Era.

Therefore, GATT had to be reinvented. This time, it would have to include China. The world could not wait to sell 1.3 billion more bottles and cans of Coca-Cola and McDonald’s burgers.  And China itself, wary of being alone after the downfall of USSR and its Eastern European allies, and tempted by outward forces of its modernizing economy, had to jump into the bandwagon. Western companies, led by American investors, raced their way to China to manufacture everything from slippers to ICs. This proliferated the market with too much China products and created higher demands for petroleum.

Negative implications for Sapian: First, China has drawn in foreign investments that would have otherwise been invested in the Philippines that, directly, either employ some Sapianons, or benefit Sapianon businessmen, or indirectly, bring in money into the domestic economy and trickle down to Sapian in form of taxes or increased buying power/demand for Sapian fishery products. Second, flood the Philippine market with cheaper Chinese goods, competing with our local industries - especially with GATT - losing our fledging manufacturing businesses and jobs. Third, highly industrialized China makes it more influential in geopolitics to the detriment of our security, including losing our claim to the disputed, natural gas rich 200-mile EEZ off Palawan. Fourth, China is developing backbone industries like steel, chemicals, etc., is reckless with environment and could upset South Asian environmental health (e.g., nuclear waste, industrial dust, acid rain, etc.). Fifth and most importantly, China, consuming more oil, offsets supply equilibrium, creating shortage, increasing prices, and causing more instability in volatile Middle East (e.g., giving Saddam rockets, bribing Iran with $70 billion, and possibly, some bits of nuclear technology). Increased prices slow down the Philippine economy, as it pays more power bills, lower Peso value because more dollar is paid for oil imports, less tax collections because of lowered profits, less foreign investments because of less anticipation of profits, and so on.   

On the positive side for Sapian: First, abundance of made in China products, as said earlier, makes it easier for us to buy products that used to be difficult and expensive to acquire. Second, China would attempt to expand its political and economic clout among its neighbors and invest in the Philippines, such as in agro-industry. This should be our last opportunity to dove-tail on global trade. Third, since the continued affluence of China’s economy is dependent on its goodwill, it would not do much to offset South Asia security - although the 200-mile EEZ is now irretrievably lost.

Petropolitik, Sapian and China - Second in a Continuing Series

Everywhere we go today, we see a proliferation of products made in China; from the simplest plastic implements to some of the most complex microprocessors.

To explain China’s voracious demand for energy, lets examine its recent economic growth. Since 2000, China’s exports tripled to over $593 trillion. Government statistics report an employment rate of nearly 97%. This industrial progress over a short period of time is unprecedented in history even in the magnitude of post World War II reconstruction. A recent report indicates that of the world’s 50 worst polluted cities (i.e., most industrially active), the top 20 are in China.

China’s great industrial transformation has put so much stress on global oil supply and distribution. China, Japan, and a dozen other countries, including the Philippines, compete over limited petroleum distribution capacity in the Far East. In 2000, China’s oil consumption was about 4 million barrels everyday, and oil price then was less than $22/barrel. Today, China’s consumption has grown to over 7 million everyday - or about 1/3 of the total world oil demand. China is now the second largest oil consumer (after the U.S.), and third largest importer (after U.S. and Japan). China will add 5 million cars every year starting this year. A comparison, the Philippine oil consumption is merely 312,000 barrels per day.

Supply is increasing in arithmetical rate while demand increase in geometric proportion. Saudi Arabia is frantically pumping its wells double time to stabilize prices. But China’s growing demand and cold cash would quickly absorb the buffer supply. OPEC members, in cohort with oil cartels, seem to enjoy the world attention to volatile Middle East and ripples by Venezuela and Bolivia that even an isolated kidnapping in Nigeria would bring them billions in windfall income.

But China could not live on oil alone. It also needs food to feed its army of factory workers and emerging industrialists Since we missed economic take off many times, we may have been destined to be the food producers. In fact, we have our comparative advantages over China. One of them, their coastline is only 14,500 kilometers - we have 36,000. Reason why China permanently encroach into our 200-mile Exclusive Economic Zone.

A few weeks ago, my former boss, Demetrio Ignacio, now Undersecretary of Department of Environment and Natural Resources (DENR), participated in a signing ceremony for an agreement with Fuhua Agricultural Group of China. Fuhua is investing $5 billion for a food industrial park and in planting one million hectares of hybrid corn in Camarines Sur, Lanao del Norte, Isabela, Occidental Mindoro, Tarlac and Nueva Ecija. http://www.newsflash.org/2004/02/be/be003383.htm

We need more export-oriented agro-industrial projects like this. It’s the only way to offset our widening trade deficit and to brace up for the oil crisis that is yet to come. Oil situation would worsen by the day as high gas prices would cause inflation. But who knows, inflation, among other adverse economic implications like higher interest rates and minimum wages, would increase production cost in developed countries. The recourse would be to move factories to countries with cheaper labor, as long as they are not very corrupt, has political stability, uninterrupted electricity, and guarantee no labor strikes.

Petropolitik, Sapian and China

The recent upsurge in world petroleum prices brought uncertainty to the global economy and brought stark reminders of the oil crisis of the 70s. In 1981, Ms. Ligaya Ofalla-Oro gave me an oratorical piece at a Sapian National High School contest. The topic was on oil crisis. It was surreal for me; all I had was a bicycle. Sapian then, while closely entwined with global petropolitik, did not have strong demand for gasoline.

In any event, it is worth to revisit. The oil crisis three decades ago was a showdown between the cartelized Western transnational oil companies and oil producing autocracies united under the then newly formed Organization of Oil Producing Countries (OPEC). OPEC, including the former USSR, brandished its newfound power at the height of Cold War, primarily against the United States, the largest petroleum trader and consumer. The induced shortage due to lowered supply was to assert OPEC power - a purely political theme.

At that time, impact on Sapian was muted. The highway system was in sad state so very few invested on vehicles even in Poblacion. Traffic of public transport plying Bilao-Damayan-Roxas City was probably less than one every hour. As such, per capital petroleum consumption, diesel at that, had been negligible. So no one really cared much about oil prices more than whines from commuters. Capiz Electric Cooperative (CAPELCO) had only installed power transmission lines so consumers did not really have any historical sense of increasing prices. The first flicker of incandescent was enough consolation. Probably, the worst impact may have been upon fisherfolks using motorzied boats, but gas burden may have quickly dissipated in upstream pricing of their abundant catch. In fact, it was the early start of the future boom on fishery export to Iloilo and Manila. At the whole, Sapian was isolated from the petroleum crisis, so I mumbled my oil crisis piece with pure detachment from the issue.

Thirty years hence, oil crisis came back with a vengeance. This time, it is the same assertion by OPEC autocracies, but it comes with genuine economic supply-demand dimension - the enormous demand by China. In this sense, crisis has metamorphosed from a basically artificial political pressure in the ’70s to one that’s a real economic pressure to supply and demand. China is a cash economy, in fact, a debt-free, highly liquid economy, with the state having infinite power over economic fundamentals. For all practical purposes, China is able and willing to pay any cost to sustain its industrial transformation. Naturally, oil producers and traders, even with the best of their intentions, would have to give in. In short, all pipelines now lead to China.

Sapian, 30 years later, has a gas demand of its own. The improved road system has encouraged ownership of vehicles. Although impact on mobility could be cushioned off by readily available public transport network, transportation costs would have to take its toll. Power connections to the farthest households in the Municipality integrate most Sapianons to bunker fuel demand. Cost of production would markedly increase in agriculture and fisheries, including aqua culture, because practically all input are imported. Increases to our prices to offset the cost of production make our products less competitive than, say, Thailand or Vietnam. The Philippines does not have any control over oil supply and production and the government has very little macroeconomic control mechanisms (e.g., interest rates, taxes, etc.) - so much underground economy. Since buying power in Sapian can only stretch so far, the immediate observable result would be cuts in non-essentials, diminished general local demand, and reduced production, and net a economic slowdown.

Thirty years hence, Mrs. Ligaya Oro’s piece is more relevant than ever. In fact, it is a stark reminder at the onset of what could be a greater economic challenge for Sapian and the world for years to come. So, next, we will discuss more about the challenges and opportunities for Sapian in the midst of the brewing oil shortage and the industrializing China.