The Betamax/STC Imbroglio

Another disaster in a long-running saga

 On 30^th March this year, Industry and Commerce Minister Ashit Gungah announced in a press communique that Mauritius had decided not to renew at end-July the contract for the supply of our oil products from Mangalore Refinery and Petrochemicals Limited (MRPL) in India. We also learn that consequently STC has floated expressions of interest for future supply of those strategic commodities.

It will be recalled that the exclusivity contract entered upon since July 2006 with MRPL refinery, had the backing of the Indian authorities with some form of guarantee of national security of supply independently of any disruptions that could take place in the volatile and tension prone world of oil geopolitics. Even if such assurances, given at repeated times since then by the highest Indian quarters, might have been more informal than contractual, still the undoubted depth and breadth of our strategic relations and commonalities with India would gave granted them undisputable weight and considerable credibility.

Such was the importance of that feature, and the resulting security and quality of our strategic national supplies, that the contract had been regularly renewed on a three-year basis in July 2007, 2010 and 2013. The non-renewal of this contractual agreement that places Mauritius strategic oil reserves and supply security with an “elder brother” which has been steadfastly on our side on all major issues (the Chagos case at ICJ and UN is evidence enough) and which seems to have extended considerable financial support to this government since 2015, albeit against the writing off of the DTAA provisions, came therefore as something of a surprise to observers.

All the more so as the reasons officially put forward by Minister Gungah (trying to get new clauses against price fluctuations in said contract) hardly held water. The incoming government, the same Minister and the STC had indeed, in the aftermath of their taking office, announced around June 2016 that they had successfully renegotiated better contractual terms, more to their satisfaction with MRPL, and that the contract had consequently been extended for another period of 3 years ending, according to press reports on 31^st July 2019. What then occasioned the end-March 2019 announcement that have left observers baffled? What was brewing up? Was there more than met the eye despite the obvious solidity of the India-Mauritius relationship? Was there any link with the parallel saga the authorities had embroiled themselves into since 2015 with the carrier Betamax?

Without delving into the carrier contract, we can observe that, instead of spot carriers and their fluctuating offers for freighting individual cargo-loads from Mangalore, the Mauritian authorities floated an expression of interest for a single long-term contract supplier to ferry our different fuel-oil grades from MRPL under stable and foreseeable prices and conditions. At the end of the floating process, the Betamax joint-venture was formed and signed, sometime in 2009, a 15-year agreement with STC and the Red Eagle was purchased and refurbished by the Group to ensure its side of the bargain.

Consequent to taking office in 2015, the new Lepep government which, during campaigning, had blasted the contract as biased to favour the Bhunjun Group, had two politically palatable options and a third which to any sensible mind, would have been careening into uncharted territories of high-risk commercial disputes. The first was to renegotiate contractual prices and terms, an option which the Bhunjun Group had expressed willingness to entertain, but which the authorities paid perfunctory attention to. The second option would have been to terminate the contract with due respect to its legal clauses. According to statements made by some Ministers since 2015, that exclusive and long-term contract had a termination clause to the tune of some 60 million US$ with STC inheriting the Red Eagle should the case arise. That again seems to have been dismissed.

Prodded and goaded by factors that remain to be determined, the 2015 Lepep government and cabinet in which sat two former Finance Ministers of the 2010-2014 Ramgoolam regime, decided that the commercial contract was basically “illegal” and therefore could be terminated by what looked like an imperial unilateral edict. Government lost its case with costs against Betamax at the International Court of Arbitration (Singapore), which was awarded some 130 mUS$ plus sizeable accruing monthly interests, a decision ruled as executory in Mauritius by interim Chief Judge Balancy in June 2017.

Since then the STC has been on appeal to the Supreme Court, while the Bhunjun Group, failing to get early recovery or settlement, has resorted to the Karnataka High Court to block delivery of MRPL products to STC unless the latter provides a guarantee that it has the ability to pay the award of some 4.5 billion Rs plus interests. An attempt that created a huffle in government quarters a few months back with emergency supplies sought from spot suppliers and brokers.

It has now been announced that the Indian Supreme Court, on Betamax’s submission, has issued an interim order on 29^th May that all MRPL supplies to STC be conditional on the latter furnishing requested guarantee, pending next hearing on 8^th July 2019. Coming on the eve of Pravind Jugnauth’s attendance of the PM Modi swearing-in ceremony, many wonder whether that legal “douche froide” could be eased by any politico-diplomatic talks that may take place in New Delhi. The STC seems to have been prescient of the outcome of the Indian Supreme Court hearing which can only be described as another disaster in a long-running saga that could have been avoided.

Most galling is the fact that this is not a costly mistake of the “hedging” variety, undertaken by a company management with good faith, on the basis of expert market predictions and to mitigate future risks. The decision and the option chosen to terminate the commercial Betamax contract was a deliberate decision by Cabinet when other alternatives were available and may have been lightly treated. It is not yet known whether government will make provisions for the pending massive Award costs of Rs 5 billion plus heavy monthly interests in its upcoming budget but the population knows who will swallow the bitter pill. Foreign investors, cognizant of this and other high-profile sagas that have hogged the limelight since 2015, may well think twice about investor-friendly havens where laws and rights of investors, businesses and ordinary citizens, for that matter, are respected to a fault.

* Published in print edition on 31 May 2019