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HERALD WEEKLY ISSUE 436 : 03 December 2008

Chamber concerned at Government intervention

Chamber of Commerce president, Steve Anderson said that if Government is trying to lower the price of fuel, there are better and more efficient ways of doing so without having to take such a draconian measure as ‘nationalisation’ of the fuel industry.
For instance, the Government could fine tune the price controls mechanisms and regulations or revisit the templates used to determine the prices.
They could also negotiate price margins with the suppliers and other players such as the Ports Authority and even Government themselves to lower their levies and VAT to help bring down the overall price of fuel. Margins in shipping could also be explored to see what savings are possible.
The Chamber assume the money is coming out of reserve investment funds, for which we presumably would be receiving a reasonable interest from the bank every year which will be lost.
In addition, the Government is currently reaping the benefits of taxes in the order of $6-7million every year. Question is if the Government takes over the fuel industry, who will be paying them the taxes (and make up for the lost revenue to the public purse)?
They don’t believe it is advantageous for the fuel industry to be nationalized. The proposed purchase is supposed to be a good for the economy and yet the Government can’t answer the basic questions.
‘This move will increase the indebtedness of the country, or decrease the reserves of the country, but either way would make the Cook Islands economy worse off’ according to the Chamber president.
Then there is the question of the expensive overseas consultants who will have their own agendas and likely to set themselves up as long term consultants in the fuel industry.
The Chamber says there are no figures from Government to justify the proposed purchase on a commercial basis.
CI Herald ventured the opinion that the DPM and Financial Secretary may have been influenced by the recent suggestion by the members of the Pacific Power Association for various national electricity utilities to band together as a group for purchasing fuel in bulk to maximize their collective clout in negotiating prices.
The Chamber president agreed it might have been a factor and said such a scheme would entail approaching the major oil companies and trying to negotiate a rate as a group along the lines of ‘give us a good deal and we will give you the business.’
The process would still involve the private sector but the difference is that there would be an ‘open book procedure’ with the buying price, shipping costs and everything out in the open’.
Anderson said the there would be huge benefits from the collective buying which he sees as similar to the process of collective bargaining. There are some practical difficulties such as getting the countries to agree as to which country the fuel reserves would be kept; the benefits accruing to the host nation and the dangers of ‘having all the eggs in one basket’ from political instability (coups) or from a security point of view. Incidentally, the Cook Islands does not have the resources in land, ports or capital or other infrastructure to be a viable proposition as a host country.
Moving into adventurism?
The Government appears to be moving towards ‘adventurism’ by risking public money in this way, whereas in the private sector, the business person is spending their own money and they will be very careful with their investment.
For instance, has the Government factored that the fuel lines are already time expired which is probably why oil companies want out as there is a need to replace the fuel lines, thereby incurring huge costs.
The so-called ‘Samoa model’ that the Financial Secretary is referring to is where medium range tanker (MRT) of 20,000 to 39,000 tonne capacity) service Fiji and Samoa.
The difference is that the Singapore ships are much larger than those to the Cook Islands and need very deep water ports such as Samoa and Fiji.
The fuel is off loaded into tank farms and then redistributed into smaller lots for delivery to other smaller island nations on light coast tankers (LCT). The company then forwards the fuel to Cook Islands in amounts of say 3,000 tonnes, therefore we do not have the ‘economies of scale’ enjoyed by Samoa and Fiji which have much deeper ports and larger populations.
The CI Herald notes that Triad imports fuel from the Marsden Point refinery in New Zealand and is said to be more highly refined than the fuel from Singapore.
Government is not providing the core service and the grassroots have begun to realize that and leave our shores for better education for their children, or for better health care or for better opportunities for the careers.
‘Actions Government are taking are symptomatic of what is causing young people to leave’ says the Chamber president.
“If the Government were to spend that money on tertiary education, then there would be something to stay for. We could train them here and they could get married here and raise their families and this would help stop the trend in depopulation.’
For instance, if the $5.5 million were spent on the proposed Pacific studies campus (to be built in Totokoitu) it would represent an investment in our future.