Oil – About Cowardly Politics and Failed Policies

By Nobel P. Loser

First, let’s attribute the reference about pilgrims and traffic jam to an artful joke born in the heat of a failed episode of spin doctoring. Our most recent update on the subject is alarming.

And we can safely warn the common man against believing all the words uttered by the political establishment, including opposition and governments, past or present. To put it mildly, and based on facts, all governments seem to have, through cowardly politics, engineered or approved ambiguous policies. Such is the situation in the case of oil or petroleum products.

For decades, by pursuing certain most inconvenient policies incompatible with the public interest, our governments have put the country at the mercy of some powerful lobbyists and businessmen. Let’s look into some examples:

Purchase. Until 2006, our major import purchases were made through an international tendering process. Those well versed in the subject know perfectly well how the world map regarding oil trade has been drawn up; who are those involved in the trade and to whom are they related; how the trade is distributed in different regions across continents and the world. In the case of Mauritius, the tendering process attracts limited bidders. And they are usually the same who show up year in year out. And they are mere traders, sister companies of other companies or umbrella companies answering only to their Master’s call.

Limited bidders reveal but one thing – there may not be any guarantee of getting full value for money in the process. The risk of cartelisation and match fixing is not to be discarded. Past experiences reveal that even successful bidders-cum-traders may fail to deliver as per contract agreement. This whole process is said to be replete with intense business, political and diplomatic lobbying. We will not dwell on commission agents. A thorough analysis of all facts, practices and information recorded during the past ten, fifteen or twenty years will reveal more than what is necessary to convince sceptics how tainted this process can become.

MRPL. Since 2006, through a government-to-government understanding, Mangalore Refinery and Petrochemicals Ltd (MRPL), an Indian refinery, is the sole supplier of oil to Mauritius, except for LPG. MRPL is a subsidiary of Oil and Natural Gas Corporation Limited (ONGC), an Indian mammoth engaged in the oil and natural gas business. Both are under the umbrella of the Government of India. Our supply agreement with MRPL has come under criticism from various quarters, including the political establishment, but for all the wrong reasons. Under the cover of anonymity provided by the media, the critics-cum-powerful lobbyists had a field day. From innuendoes to libels, lies to false assumptions, they lobbied primarily to cast aspersions and doubts. The truth came out some time later when a WB-IMF officer lobbied in favour of a multinational ready, according to him, to conclude a similar deal with Mauritius. Two things for the record: first, if the MRPL deal was viewed as a good deal, none has come forward so far to make a statement to this effect; second, in the period before direct dealings with MRPL, successful traders-bidders for oil actually used to purchase products from MRPL to meet their contractual commitments towards Mauritius.

Storage and transport. We take both issues together because they are inter-related. It is no secret that our storage capacity is flawed; the heavy costs of this shortcoming are paid by consumers. It is alleged that those who benefit from this status quo situation for decades have been some oil traders. Obviously, those who suffered most for decades have been the Mauritian population. The blame for this absurdity should be laid at the door of all governments.

When contracts for purchase are signed with oil traders or MRPL, two main conditions are agreed upon: the price of products will be as per Platts rate or Arabian Gulf or otherwise as set at a given time because price fluctuates every second and every minute so to say; the second component is about “premiums”, a term which includes freight costs, insurance and any associated risk, if any. Limited storage capacity means frequent replenishment of supplies; these results in putting very heavy costs and a higher burden on consumers under the item “premiums”. And the risk of any delay in supply, for any reason whatsoever, can harm consumers and the economy.

The issue of storage was raised a few years back at a meeting convened by the Finance ministry and attended by the top hierarchy. As shocking as that may appear, the meeting was deemed to be over after a Finance cadre suggested that the technical expertise of WB-IMF would be sought. If we seek Joseph Stiglitz’s opinion on the matter, he will write a book to denounce our high-fat-low-calorie brains!

LPG. The storage capacity is chaotic and worse than that of oil. Again we pay for product plus “premiums”. Very limited storage impacts negatively on the interests of consumers under item “premiums” and they pay for all of it. Replenishment of supplies is astonishingly expeditious. In the recent past, a potential supplier was ready to sell and transport around 30 000 tons of LPG at one go, nearly half of our annual consumption, but this offer was not entertained because of our limited storage capacity!

Sale and distribution. It might seem flawless; but ask your retailer-manager the conditions attached to the purchase of products. And ask any of the big boys if the same conditions are applicable to them when it is they who make the purchases. You may want to check out whether wholesalers are also retailers!

Conclusion. Had our storage capacity in the case of oil and LPG responded to our national interest and not to that of some traders and businessmen engaged in that sector, the country would have saved billions in foreign currency over the years. Bigger storage capacity means savings on “premiums” if bigger tankers are used for transhipment of products. Again, don’t be shocked to learn that our Port has no facilities to welcome such tankers!

When the competition commission bill was being discussed, it was agreed that oil and LPG, as strategic products, would be kept outside its purview “pour une raison d’Etat” — to protect the national interest. It is high time that government stops being foolish and cowardly. Purchase and storage of these strategic products cannot be left in the hands of some traders-cum-businessmen-cum-commission agents. The government should stand up firmly and assume its responsibility vis-à-vis the country. It should not succumb to business blackmailing or malicious business intentions wrapped up in the form of specious win-win business deals.

By the way, even the recent purported agreement for additional infrastructure for LPG is said to be deeply flawed; so is the other deal pertaining to transport; and both may be against the national interest. What if tomorrow any one of these companies are put up for sale to the highest bidder? None can legally stop this from happening. The national interest will thus shift uncontrollably into the hands of other traders-businessmen from the current ones whose main accountability will be to their own pockets first.

If Mauritius is serious on this issue, we humbly suggest that it may be worthwhile to travel to Mahe in Seychelles. A country of only 85 000 people, it owns through the Seychelles Petroleum Company (SEYPEC) five tankers for transport of oil! And their storage capacity is such that they can help us out if we run out of oil. They did it once. Seychelles is a re-exporter of oil. In his budget speech for 2009, the Seychelles minister of Finance had this to say – “…Revenue and profit from the tankers have been very good.” And SEYPEC just created a management company to take hold of all technical matters related to the management of its fleet of tankers.

Two last anecdotes. Since years, Mauritius is dreaming bigger dreams than the Seychelles. Many ministers dream of setting up an oil refinery around Mauritius. Second, the first 60-0 government of 1982 nurtured no less than this dream – that Libya would donate oil to Mauritius. This was unfortunately recorded in a red file marked ‘Confidential’!

Let’s hope that next time nobody puts any blame for interruption of supply of oil to the public on pilgrims but put it rather to their own cowardly politics and failed policies.

* Published in print edition on 11 March 2011