LAST weekend, motorists were greeted with the price reduction of P1.25/liter of gasoline and P0.50 to P1.00/liter of diesel. Reports cite the weak demand in the US and Japan, two of the world’s largest oil consumers, as one of the primary causes in the softening of world crude prices.

The law of supply and demand rules. Present price levels may not be exactly what motorists and commuters want but, after more than a month of almost weekly price hikes, a rollback is still a rollback. The global economic slowdown has tempered demand for and dampened the price of petroleum for now but, as sure as morn follows night, prices will again pick up when petroleum demand heats up.

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To complicate matters for oil-dependent countries, oil exporters control production to prop up oil prices. They claim that they can produce only this much because their reserves are already low. Yes, it’s true – and pigs fly! The slightest hint of tension in the Middle East, an attack in an oil pipeline in Nigeria or increased incidence of oil tanker piracy in the Somali coast is excuse enough for oil exporters to increase prices.

It is utter folly to rely on imported oil to fuel the country’s economy. Government is on the right track in passing the Biofuels Act to create a mandate for ethanol and bio-diesel blend in fuel. The law should have sent investors scampering to build ethanol plants post-haste but, up to now, only San Carlos Bioenergy and Leyte Agri Corporation are producing ethanol in commercial quantities.

According to the National Biofuels Board, ethanol demand for 2009 is pegged at 208 million liters. The two existing ethanol distilleries have a combined output of only 39 million liters or less than 20% of the requirement. Thus, oil firms have to import ethanol to comply with the minimum blend mandated in the Biofuels Act.

It is ironic that, instead of local producers, it is foreign producers who are profiting from the Philippine ethanol market. Oil companies point out the lack of local ethanol supply as their reason to import their requirements. Unfortunately, they reportedly prefer to import almost all their requirements, buying only a token amount from the two local producers.

Without assurance that all their ethanol production will be bought by the oil companies, local producers can hardly be expected to boost production. Without long-term contracts with oil companies, investors will find it hard to raise the financing for the construction of more ethanol plants. Without more ethanol plants to absorb the surplus cane production, producers will continue to suffer sluggish sugar prices and the country will remain hostage to the whims of the oil tycoons.

In a letter to National Biofuels Board chairman SRA Administrator Lito Coscolluela, Cocoy Locsin, Confed national president, stressed: “Ethanol is an infant industry and it needs to be nurtured until it matures and is able to stand on its own feet and be competitive”.

Locsin lamented that the Department of Energy and other government agencies make it very hard for investors to secure government clearances and permits for the building of ethanol plants. Frustrated by the bureaucratic maze, investors get discouraged and immediately transfer to other countries where government is more cooperative.

There is a law mandating the use of ethanol so there is a sure and steady market for the product. There is the availability of sufficient feedstock from tested and proven sugarcane producers. There are foreign investors and local partners willing to raise the funds for the construction of the ethanol plant. So where are the ethanol plants?

Ethanol is not simply a sugarcane industry issue but a national concern. It is hoped that Arroyo learned something from her trip last week to Brazil, the world’s largest ethanol producer with an expected output of 28 billion liters for ’09-’10. Sugarcane-based Brazilian ethanol reportedly yields 8 times more energy than is used in its production process while corn-based US ethanol yields only two times the energy used in its production.

Most Brazilian sugar mills have a piggy-back ethanol plant and a cogeneration facility fueled by bagasse. Aside from their sugar and ethanol output, they produce their own electricity to run the mill and distillery and sell the excess energy to the public electric utilities. Hence, they don’t strain the generating capacities of independent power plants but instead augment the power supply in the country.

It took 30 years for Brazil to be where it is now. Hopefully, PGMA and company were able to convince Brazilian officials to share their technology and resources in developing the ethanol and energy potentials of the Philippine sugarcane industry.

According to my friend Maning Diaz: “If all sugar mills in the Philippines will piggy-back a 100,000 liters/day ethanol plant costing US$ 2.5million to US$3 million using molasses as the feedstock, it will boost the fuel ethanol production without even touching the sugar supply. Brazil has the equipment for these piggy-back plants. Are our sugar industry officials still like an ostrich hiding their collective heads in the sand?”

For reactions and suggestions, email bbacaoco@yahoo.com