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 - Tenth in a Continuing Series

FVR’s trip to visit a farmers’ cooperative in Silay, Negros was actually a side trip to a visit to Victorias Milling Company (VMC). VMC is a family enterprise started in 1951 by the super rich Luzuriaga clan in Victorias, Negros Occidental. Its over-diversification and the decreasing demand for cane sugar in the world market left it in financial trouble. So, FVR bailed out the sinking company with a PNB loan package. While there, he inaugurated additional canneries for VMC Spanish sardines and Spanish-style bangus that we enjoy today. Victorias deserve help. It is probably the most compassionate company that I will ever know. Don Claudio de Luzuriaga was said to be strict and arrogant haciendero. Of course, since the 50s, he had the first and only sugar refinery (white granulated sugar) in the Philippines until Benedicto built the Calinog-Lambunao refinery in the late 70s. But one night he had a dream of God castigating him. The next day, he built a Church of the Angry God as he remembered it in his dream. We visited the circular Catholic Church painted halfway around with a mural of a very angry Jesus Christ, pointing fingers, mouth cursing, eyes blazing with fire, on the background were lightning bolts and a trembling earth. The depiction of Christ would have been a sacrilege had he not own a refinery. More than that, he also built homes for all his workers, from accountants to tractor drivers; houses with middle-class amenities, marble floors, hardwood panels, running water; he established a hospital, and sent the kids to better schools in Bacolod, from prep to College. Some children and thrid generation descendants of drivers and servants are now doctors and engineers. And many of them continue to work for VMC.

Since it was a PNB bail-out, PNB Chairman of the Board, and Presidential Adviser Bitay Lacson (former Negros Occidental Governor) helped us coordinate the event. We see Governor Lacson every Tuesday in FVR’s Cabinet. Bitay is the elder cousin of Jules Ledesma III (Asunta), sugar baron of San Carlos City and owner of Negros Navigation (NN). He is also the boss of Iloilo’s Hechanovas - Ramon is the Chairman of Regional Development Council (RDC) and Tony is former NN president before he was appointed as DENR Undersecretary. We will talk about the Hechanovas in another post, particularly, on with regard to our improved road that was officially called, Panay Arterial Highway/Kalibo Highway Phase II: Crossing Lanot-Banga Road.

At the end of the program, and FVR has gone to golf with the Luzuriagas, we staff waited in the VMC Club House with West Visayas PNP and AFP commanders ready to load our VIPs back to Manila. Suddenly, I saw retired Colonel Romeo S.  Fernandez. I approached him and he remembered me. He said he was the Warden of prison in Iloilo. Colonel Fernandez was the Provincial Commander of Capiz for many years. I remembered that when we were in Grade VI-Rizal, under the late Auntie Pining (Mrs. Josefina) Baguio, we had flag raisings and retreats in front of municipal hall and Chief Jose “Peping” Honrado was the Chief of Police. He was still the Capiz PNP Commander until after I graduated in High School. When we were in first year high school, the late Mayor Ishmael B. Orillos organized an very important Purok Organization event held in Basketball Court. Nong Tiboy even had a lechon baka near the slide. I waited for slices of roast calf and watched the program. Colonel Fernandez was the guest of honor, and Chief Peping was introducing him, “Colonel Fernandez, I am happy to report to you that the Municipality of Sapian is the most peaceful town in the whole Province of Capiz!” Then there was a very loud BOOOoomMm! followed by a long silence. Toto Alfred Oleo, Ramon Montina and the late Peter Vista Bueno were in Toto Alfred’s house just on the next block from the program and they lighted a large firecracker. Chief Peping ordered his policemen to get the perpetrator, but before they could, Alfred’s Dad knew who it was and they really got into a big trouble that night.

Mr. Eddie Olmo deputized Nening Alex Olano to train our CAT Corps officers. The day before COCC started, Nang Marilou Oro received a message from Provincial Command for a youth training. I, together with the late Sammy Oro, was asked to go Loctogan to attend a Barangay Rural Improvement Corps (BRIC) seminar on livelihood project. Colonel Fernandez presided over the training. I asked him to give a short tape-recorded inspirational message to SNHS CAT Corps. He obliged and remembered me from thereon. The tape was played on our COCC. Many years later and long before our last meeting in Negros, we would see in few major events in Malacanang and once in Camp Crame. I reminded him of the interview in his jeep. In one instance, I delivered his letter to FVR, and in another I helped follow-up his retirement with General Ernesto Gidaya of Veterans Affairs

Petropolitik, Sapian and China - Seventh in a Continuing Series

Then, an important aspect of this series on Sapian, China, and petropolitik is oil deregulation. In theory, it allowed any company to operate in the downstream oil industry. Of course, we do not have upstream oil industry to speak of. But this paved the way for the organization of 14 new players (e.g., Eastern, Shale Oil, Flying V, etc.) and arrival of French Elf Aquitaine and Total, and American company known as Coastal Petroleum. http://www.tsha.utexas.edu/handbook/online…es/CC/doc5.html

In addition to being a staff support to regular Cabinet Meetings, I also supported Cabinet Cluster on Energy (Cluster D). Policies on energy, including oil deregulation, price increases, etc., are regularly discussed, before directions are issued to the Energy Regulator Board. My brush with small time oil interests started when our cousin won as mayor of Tangalan, Aklan and came to Manila to explore for projects. We had a small network in the FVR Malacanang partly because former Presidential Counsel Antonio Tirol Carpio’s (now, a Supreme Court Justice) mother is from Tangalan and Boracay, and relative of Nong Liling Tirol of Majanlud and Bilao. FVR’s biographer Jojo Terencio is from Makato, plus the network of retired General Federico Ruiz. In any case, Mayor Francisco, whom I later brought to Toto Wally and Shirley Martinez house in Angkin on one New Year’s Eve on our way home from a rock crusher intended to supply quarry rocks to PhilEstate in Boracay, introduced me to Shell oil barge contractors. He used to work in Shell and had contacts with Shell tanker barge contractors. These contractors are also connected to the late Senator Robert Barbers in many ways. With that group, I saw Nong Richard Jamora, son of Auntie Titay, who is a Manager in Shell Tank Farm in Pandacan. Later, I would draft letters to Nong Richard on behalf of these interests pleading leniency for the petroleum safety violations or delivery shortfalls.

Coastal Petroleum, a Houston, Texas based company, contracted the use of underground petroleum storage in Subic Naval Base. The storage facility has a capacity of 2.4 million barrels, or worth over one week of total national consumption. My friends would later have transport services and distribution/trading contract with Subic Coastal.

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 - Third in a Continuing Series

Sapian National High School (SNHS) is perched over a ridge terminating to a hill called Garrison. We were told that there was a Japanese garrison on the hill’s summit presiding on a mile long Dalit ambush area. Strategically located, it could literally shut down Poblacion from westerly traffic. In the mid-80s, Garrison peacefully ruled over the northwest side of Poblacion. It gave a good view of Sapian Bay and beyond it, Sibuyan Sea. On a nice weather, silhouette of Sibuyan Island could be seen on a horizon that stretches to approximately 180 degrees.

For SNHS students, that was a sprawling view of the world. Exhilarating but still tangible. It should have been enough world-view for us in high school. But our economics teacher, now Professor Norma J. Flores, insisted that there’s more world to see. Our Marcos-type classrooms have corrugated steel roof riddled with holes, both from corrosion and rocks hurled by students who want to leave their mark. On a rainy day, we would joke that classes are suspended because the chalk is wet. On sunny school days, streaks of light from the holes move about the floor as the sun progressed through the day. As our teachers belabored to school us, the streaks of sunlight, slowly moving on the roughly finished pavement and through rough, dismembered chairs, have been good digression. Sometimes, they would even tell exactly how soon the next change period would be. But Miss Flores, on one warm late morning, showed us two streaks of light into world-views hitherto limited as the horizon seen from Garrison. She explained to us the concepts of geopolitics and laissez-faire. Then, she talked about agrarian reform, money velocity, inflation rate, taxation as a regulating economic mechanism, and so on. As we delve into China’s unquenchable demand for petroleum, its transformation to the league of G-8 nations, and its implications for Sapian, the economic principles that Ms. Flores taught us three decades ago are still the same.

In fairness to China, we in Sapian also benefit from its abbreviated economic transformation. It brought us cheaper goods and commodities. A decade ago, many products would have been expensive to acquire and difficult to own. But because China produces them strike-free, with depressed wages, less stringent environmental regulations, government subsidies, centrally planned production system, input distribution network, and in such very large quantities, it is now easier to acquire them in Sapian. Nike made in the U.S. could have been prohibitive than the Nike made in China today, considering that raw materials and manufacturing process are essentially the same. The lowered cost of consumer goods allowed us to enjoy conveniences we do not have today if commodities are still being manufactured in Western nations. Take the example of cheaper electronic components. Cheap ICs, memory chips and flash memories allowed manufacture of cheaper cell phones, among hundreds of electronic goods and consumer durables. My former employer, a Sunnyvale-based Advanced Micro Devices, Inc., invested billions of dollars for a wafer fab in China. A classmate in Manila who manufactures household plastic products complained that Chinese imports are killing their family company. Better quality products are being imported into the Philippines from China with less than half the price if they are made in the Philippines. In fact, their raw materials, polyethylene (PE) and polypropelene (PP), are imported from napha-crackers in China. Such that, after costs for import duties, middlemen and transport, plastic products manufactured in Manila cannot stand a chance against those from China. On the plus side, this situation benefits consumers in Sapian. But the minus on domestic industries will be taken up on a future post.

China, even with its vast capital, cheap labor, controlled industrial system, and subsidized industries, would not be where it is today without laissez-faire. Ms. Flores told us that it is French concept by an early English economist, Adam Smith, that means “produce what you want, when you want, and sell where you want, at a price you want.”

In one holistic worldview, and a little dose of contemporary history, there was a geopolitical movement soon after the downfall of the former Soviet Union to disarm China of its age-old antagonism against the West, enlist its stable and centrally-planned economy as the factory of the world, harness it cheap and educated labor force, and enter its 1.3 billion people market. After the Cold War, it was learned that when you starve an enemy nation, it gets more ruthless to its citizens and connive more against you. But if you trade more with them, laissez-faire economic forces would materially reward their participation, creating a new middle class, and hasten economic liberalization that, in the end, will democratize key socio-political institutions. A facility to do this was the decades-old General Agreement on Tariffs and Trade (GATT), an economic club meant to remove trade barriers (i.e., tariffs, import taxes) among Western nations and their junior leagues. By mid-1990s, it was expanded into a new and improved GATT/World Trade Organization (GATT/WTO).

It was designed not only to counterbalance the growing influence of European Community, but also to enlist new nations, especially China. I did not have the opportunity to tell Miss Flores how her economics effortlessly replayed on my mind as I sat few paces from former presidents Cory Aquino and Fidel Ramos in Malacanang’s State Dining Room for the frequent Cabinet deliberations on GATT/WTO and petroleum deregulation.

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.