THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #4
THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #4
[This is Mar Tecson’s comment on Marcial Ocampo’s comment #4. The reader is advised to add his comments to this blog. Cheers. Marcial]
Marcial Ocampo’s response is found in these links:
From: Marcelo Tecson <martecson@yahoo.com>
Subject: LET US USE BOTH PROFITABLITY MEASUREMENTS… Re: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves: Friday, October 2, 2009, 12:48 PM
Hi Marcial,
You are correct, and I have an appreciation of how investment decisions are made using DCF analysis from my undergraduate and graduate courses, foreign training in two US universities, and actual experience in the planning group.
In the case of the big three oil companies, however, they have already made the decision to invest in the Philippines a long time ago, so their present interest is how to maintain reasonable rate of return on their already invested capital.
The use of percent margin on DPLC is all right if imported oil prices are stable. However, if prices are volatile, in arriving at estimated annual net income, use of such profitability measurement will entail a re-computation of margin every time imported oil prices fluctuate significantly. For instance, assume a 20% margin on DPLC based on imported oil at $50 per barrel. If the international price doubled to $100 per barrel, giving the oil companies the SAME MARGIN of 20% of the new DPLC will definitely result in fantastic increase in annual net income to them. So you will then have to recompute the NEW MARGIN on DPLC that will maintain the old acceptable PERCENT RETURN ON CAPITAL to the oil companies, which need not be disturbed or adjusted upwards for the sake of the buying public.
In a changed situation, if, for example, the imported oil price of $100 per barrel returned to $80, then $75, then went up again to $100, then went down to $40, then went up again to $160 per barrel, you will have to recompute again and again the percent margin on DPLC. It is easy to do so on a computerized basis, yes, but for the top brass in DOE, in the oil industry, and corporate and individual consumers, such fluctuating rate of margin on DPLC is CONFUSING, to say the least. In fact, as far as the people are concerned, it is pointless because they are not privy to DPLC data of oil companies to begin with.
What we need is to develop a rule of thumb based on more or less constant PESO PER LITER MARGIN that would equate to specified PERCENT RETURN on oil industry CAPITAL. To illustrate, assuming that P5.00 average per liter margin will yield the targeted PERCENT return on capital to the oil industry, even if imported oil prices move up or down the range of say $50 to $150 per barrel, by simply maintaining the said P5.00 per liter margin on oil products, the targeted percent return on oil industry capital will be similarly maintained.
Let us just say then that we should give our highest government officials, the business sector, and the buying public all the information they need and deserved to have–both PESO PER LITER MARGIN on oil products and PERCENT MARGIN on DPLC–because anyway doing it is plain and simple CLERICAL ASPECT of the government’s watch over the oil industry. It is not too much to come up with these data once a data base is established.
So, may the DOE or you come up with the cited needed information (peso per liter margin on oil products sold and percent margin on DPLC) as of 1997, 2005, 2008, and 2009–as a way of determining the impact of oil deregulation on these oil industry profitability measurements?
Mar
Leave a Reply
