THE HOYOS FILE: An offer the FTC shouldn’t refuse
For the last 30 years or more of the 20th century, we lived in a country where monopolies or quasi-monopolies ruled the roost.
In the private sector, you had Barbados Shipping & Trading Co. Ltd., for decades the largest and most powerful company operating here, and we also had the Mobil refinery, whose messy operations are still causing problems in the Needhams Point area, and Cable & Wireless, which had the monopoly on everything to do with telephony.
We have also had the Barbados Light & Power Co. Ltd., which was never given a monopoly on electricity, but enjoys a quasi-monopoly status, as the only electricity utility.
On the Government side, we had Caribbean Broadcasting Corporation and later its satellite TV offspring, Multi-Choice TV; as well as the Barbados Water Authority.
Regulating these monopolies was based on the premise that nobody would want to come into this little itty-bitty market called Barbados and that we should be grateful for those heroic companies that did.
And so, to ensure their viability, we allowed them to make a good profit, with the Government determining the prices that were directly paid by individual consumers for fuel, telephones, and electricity.
By the end of the last century, Barbados had become a more attractive place for investment, so the Fair Trading Commission (FTC) was created to take over from the Public Utilities Board (PUB), and, with a few other parallel pieces of legislation aiming at putting the consumer in the driver’s seat, set forth a bold new vision regarding regulating markets which were trying to burst out of their old quasi-monopoly status.
The goal was to encourage more players into these “utility” sectors by having that “level playing field” over which a reasonable umpire (the FTC) patrolled, ensuring that competitors in a particular sector were encouraged as long as their dealings, or trading, between each other and with their consumers was, well, fair.
My whole point here is that we moved from the old and much more limited PUB, which was, by its nature, reactive – as in, well, you are the only ones in the sector, so we will try to keep your prices reasonable – to proactive, as in not only keeping prices to the consumer reasonable, but creating a marketplace that, even if limited to entry because of the cost of setting up shop, would still be attractive to some investors.
And in terms of those prices, the whole idea was that this more outward looking approach – based on a country whose economy had grown from a sleepy sugar-based colony into a mass-based consumer-driven marketplace earning foreign exchange from tourism and the offshore sector – would self-regulate through competition, with price-setting retained only where absolutely necessary.
So it strikes me as odd that the present Government could extol the virtue of a private monopoly in the oil terminal business.
Despite having another would-be purchaser in the very same market – one which has as much or more terminal operating experience as the one which Government has selected as sole purchaser – the Government has agreed to give that selected purchaser a 15-year monopoly by not approving the building of any other terminal facilities for that period.
So it is willing to essentially create a hostage tenant for the purchaser, and proposes to ensure it thwarts the works of the FTC by also inserting itself directly onto the board through the retaining of a “golden share” in order to monitor that no anti-competitive hanky-panky takes place.
In summary, in order get the selected purchaser to buy the terminal, the Government has shown it is willing to alienate a perfectly viable co-investor in the Barbados National Terminal Co. Ltd. (BNTCL) while at the same time forcing the passed-over potential purchaser (Rubis Caribbean) to use the very terminal it is not being allowed to invest in.
What’s fair about that?
So the FTC, which has announced it is reviewing the proposed sale, and is under extreme pressure to approve it because the Government desperately wants the funds to shore up its foreign reserves, has to decide if it wants to promote monopoly or competition in the sectors it regulates.
If the Sol Group is allowed to take over the BNTCL as sole operator, it would have unprecedented market power in Barbados, far more than enjoyed by any single operator even during the heady days of monopoly.
Is that fair?
Making all the rules and regulations for the terminal would on the face of it be unfair to Rubis, especially as the two companies compete on selling jet fuel to airlines, and no matter how transparent Sol tried to be, the possibility of “unfairness” happening would be impossible to rule out.
This is an important point, because while in the case of diesel, gasoline, and crude oil (for export to Trinidad and Tobago), the terminal is storing product owned by the Barbados National Oil Co. Ltd., in the case of aviation fuel it stores product imported directly by Rubis and Sol.
For you and I – whose direct experience with petroleum products may only be for our vehicles or stoves – it may come as a surprise that almost the same amount of aviation fuel is imported for sale to the jetliners as diesel and gasoline combined, but it’s true.
According to a document on the FTC website, the current annual figures are 760 000 barrels for gasoline, 460 000 for diesel – which together total 1.22 million barrels – and 1.2 million barrels for “avjet”.
That is why the FTC should rule against the proposed deal that would give Sol sole ownership of the terminal facility and instead recommend the offer made by Rubis last week, when it offered to meet the Government halfway and buy 50 per cent of the terminal facility for US$50 million, the money to be paid by the end of March.
Rubis, in making the offer, is literally doubling down on its investment bet that Barbados is a good place to do business, apart from also building its Caribbean headquarters here.
That investment would put the company’s total investment in Barbados in just six years at over US$100 million.
What more does this company have to do to show its good faith in this country?