Sun | Mar 18, 2018

Editorial | The Government’s gas station folly

Published:Monday | December 18, 2017 | 12:00 AM

Here is a bit of commonsensical advice for the Government. It should immediately halt any idea of returning to the retail market for petroleum products and instruct the Petroleum Corporation of Jamaica (PCJ) to pull out of the contract it may have entered for a market study and save taxpayers the money.

Further, Prime Minister Andrew Holness should tell the public whether this idea is in keeping with the Government's policy and has the approval of the Cabinet, and, if yes, what, in less than two years, was the basis for this major shift. Perhaps, too, the prime minister should begin to think in terms of ministerial censure.

The disclosure that the Government was in the market for consultants for a study on re-entering the petroleum market is especially surprising in the context of recent developments. It had been expected, by now - but for unavoidable circumstances, or in strategic sectors - to be firm policy that Jamaican governments were withdrawn, or withdrawing, from commercial enterprises.


Huge losses


And with good reason. By and large, governments suck at running businesses. In Jamaica's case, those that the Government operates have mostly racked up huge losses and accumulated big debts, saddling taxpayers with a huge burden. Indeed, loss-making public enterprises were not insignificant contributors to the country's debt that, not so long ago, was on speed march towards 150 per cent of gross domestic product, with deleterious consequences for the fiscal accounts.

Happily, under the tutelage of the International Monetary Fund (IMF), the country has begun to take stock of this bad state of affairs. Though not fast enough, the Government has been divesting its commercial enterprises, allowing the private sector to make better and more efficient use of the assets for job and wealth creation.

Among the enterprises to have been offloaded since Mr Holness' administration assumed office nearly 22 months ago was the Petroleum Company of Jamaica (Petcom), which operated a chain of 24 petroleum service stations and a number of filling stations for liquefied petroleum (cooking) gas. The company, a subsidiary of the PCJ, was sold for US$19 million. At the time of its sale, Petcom had 12 per cent of the retail market for petroleum, with sales of around J$9.5 billion. It was losing money.


Strategic interest


Our expectation is that the PCJ would be accelerating other divestment, such as its electricity-generating Wigton Windfarm and what remains of its ethanol operation. We concede that maintaining its 51 per cent ownership of the Petrojam oil refinery is of possible strategic interest.

It is a shock, therefore, that a year on, the administration is hankering for a return to the petrol station business. And it appears to want to do so without offering the public any credible explanation for this policy decision. In fact, it has said nothing at all.

Insofar that there is anything from which we might, tangentially, infer a cause for this interest, it would be the recent complaints by the finance minister, Audley Shaw, about the high prices of petrol at the pumps. Mr Shaw has been forced to deflect criticisms that these prices are the result of the additional taxes he was forced to tack on to petroleum products in his last Budget to help compensate for the revenue he lost in raising the threshold at which personal income tax is paid.

The expectation, in this circumstance, is that government-owned petrol stations, if they had sufficient volume, could put downward pressure on the price at the pumps, thereby lessening the inflationary impact of petroleum, with its broad pass-though effect, on the national economy. There is no evidence that this is the Government's thinking, but if it is, it would be the beginning of a short route to fiscal folly.