The Betamax Issue

A dose of cool-headedness and sticking to principles will do nobody any harm

The government headed by SAJ as from 1983 was characterised by decision-taking more than anything else. The effect was to put to rest all the chatter and “revolutionizing” noise that had accompanied the short-lived government of 1982-83.

The country benefited from it. New and effective institutions were established. Cashing in on the ungrateful work done previously under the austerity regimes from 1976 to 1982, including tough currency devaluations and embarking on a series of structural reforms of the budget, a new spurt was given to industry in the period after 1983. Everyone in his sector set out to produce tangible results and generate advancement. Yet, the focus was more on outcomes for the country than on individuals trying to outshine each other.

The new government is at the beginning of its mandate and we should not expect it to attain cruising speed right at the start. But we will expect it to set the tone, to still the noise and start steering the real course firmly. Getting down to work involves changing a number of parameters which will launch the economy and public institutions on a stronger course than before.

This course has two components. One is to demonstrate to the people that the interest of the public has primacy over all other interests – and this is being done. The second aspect, equally vital, is that this course does not consist – after having duely raised a clamour about all that has seemingly gone wrong with the previous regime – in allowing such clamour to dominate the public space beyond a point. Rather, it is to give assurance that, if these sorts of things have happened, the laid-down principles and procedures for addressing them are being followed rigorously. There are institutions in this country which are entrusted with specific duties. They must be allowed to do their work efficiently without any goading from whomsoever, and airing furiously their suspicions of previous wrongdoing. The outcomes from following laid-down procedures will themselves show to the public all that has gone wrong.

Take all the tumult that has been created around the oil freighting activity entrusted to the Betamax Company by the State Trading Corporation. We have had a series of ministerial press conferences to publicly point out that the government has serious misgivings about the way in which the contract has been signed between the two parties.

It all began by stating that the freight rate paid under the existing contract to the company was twice what other oil and gas freighting companies would have charged. This in itself would be sufficient to arouse suspicions in the public mind that some questionable act would have been at the basis of this contract. As far as we can make out, a contract is made between two consenting and mature parties.

Can we, without proof, accept that some arm-twisting was resorted to in order to get into this juicy contract at the expense of the “less mature” party, notably the State Trading Corporation (STC)? Are we to assume that the STC was made to sign up this contract against its better commercial sense, despite having been the trading arm of the government over a long number of years? Is only one side to blame? To reach conclusions on matters of the sort, there are laid-down institutional procedures to follow which can sift the wheat from the chaff. We haven’t had the benefit of such independent public scrutiny in this case.

We are being told again that the contract was secured “unlawfully” inasmuch as the State was made an indemnifying party to it. It is being said too that the clause whereby the state would step in to make good any short payment to the Betamax Company by the STC would be contrary to law. This clause has been interpreted as a challenge to the country’s sovereignty by the Betamax Company and good enough, therefore, to prompt a rescinding of the contract binding the two consenting parties. The contract has accordingly already been rescinded unilaterally. We have also been told that, in view of this “illegality” the matter has been referred by the Minister in charge of Financial Services and Good Governance to the police for investigation.

It is an elementary and basic practice in the world of financing that one of the parties entering into a contract involving regular payments of its dues may seek comfort from a third party – be it a state or another corporation or individual – to guarantee that there is no default. Many international public institutions come and give their support to get projects off the ground. They do so by providing indemnification where there are uncertainties about one of the two parties to a contract not being in a position – at some point of time or other – to honour the terms of the contract. Big investments materialize thanks to such reassurances given to the risk-taking investors.

This practice is widespread all over the world. There is nothing unlawful about it. If anyone suspects that the consent of the State in the present case was obtained under duress, he has to prove it by producing evidence that the state had alternative remedial measures to propose but gave way too easily to a demand which is supposed to be tantamount to a challenge on the “sovereignty” of the state. The beneficiary of the guarantee has nothing to reproach himself in so far as he has taken steps to protect his stake.

The problem with this state of affairs is that it will invite retaliation from offended parties which may earn a bad name in the public for the treatment meted out to them. The retaliation could involve suits for damages. We are not there yet. But we are in a rule-of-law country. This is probably the reason why many outrageous clauses that have been inserted in the heavily skewed contracts of Independent Power Producers — at great expense to the consumers of this country — have not been repudiated by a waft of the hand for the almost two decades that those contracts have been in operation. It is to be hoped that the government, on the principle of the primacy of public interest as mentioned above, will be similarly and equally firm and transparent in resolving the skewness in those contract too.

The country will get back on its firm feet if we remove from it the current turmoil visiting upon it. It is only then that it will settle down to real business, as was done in the period after 1983. A principled approach which prioritizes all that needs to be prioritized – and discards or relegates the rest to the background – will bring back the much-needed environment of the creative years of the 1980s.

* Published in print edition on 6 February  2015