The Betamax/STC Confrontation: Lessons from a Crisis

Every self-respecting nation in the world has set up what are called strategic reserves to take care of sudden disruption in their supply chain of petroleum products — By Rajiv Servansingh

Mauritius has just gone through yet another harrowing experience over the last week as the country was threatened by an eventual shortage of petroleum products. We leave it to one and all to imagine the extent of damage which this would have caused to an already underperforming economy and, perhaps even worse in the circumstances, the general feeling of ill-will which it would have created among the population during this coming festive season.

It was Machiavelli who said that “we must never miss the opportunity provided by a major crisis” and all the actors who have somehow, presently and in the past, contributed to fomenting a situation which could have occasioned such consequential disruptions to the society and economy of the country would do well to pause and draw the necessary lessons.

Indeed it would be no exaggeration to suggest that the crisis, which at the time of writing this paper, seems to have found a last minute remedy, encapsulates some of the worse aspects of the breakdown of governance and leadership which has characterized the “political class” in this country over the past decades. First and foremost, indecision and lack of implementation capacity if not lack of focus and sheer irresponsibility.

With due consideration to the level of risks associated with a sudden disruption in their supply chain of petroleum products, every self-respecting nation in the world (non-oil producers) has set up what are called strategic reserves of petroleum products to take care of such an event for a reasonable period of time. The United States has one of the largest strategic reserves in the world.

In Mauritius we depend on an oil tanker which supplies the country with about 50 to 60,000 MT of petroleum products every 21 days or so. This tonnage of various products (Mogas, Diesel and Jet fuel) barely constitutes the national consumption for about 28 days. If at any time and for any reason the 21-day cycle is broken, the nation stands to live through the same trauma which we have gone through over the past week. The worst is that every single government which has been in power since the beginning of this century at least are fully aware of this “Damocles Sword” constantly hanging over the very “normality” of life in the country.

Numerous initiatives have been proposed (Indian Oil-Mauritius has a finalized plan for increasing its storage capacity at Mer Rouge ready since years now awaiting all necessary bureaucratic green light) and have been lying in some drawer or the other. No need to mention that if only Mauritius had a month strategic reserve with this 21-day cycle, the recent events would have been cause for concern without the dramatic sting of a potential socio-economic trauma.

The setting up of the State Trading Corporation was a well calculated and, to our mind, a most appropriate response to some of the vulnerabilities to which Small Island Developing States are exposed. Indeed our consumption of rice, flour and petroleum products is so puny in terms of the world market for these commodities that it makes sense for the country to consolidate its purchases of these products and for negotiating with sellers as well as shipping companies to obtain the best rates for our national procurement.

These commodities are classified as “basic consumption necessities”, the regular access to which at a reasonable price is vital to the very survival of the social fabric in the country. For these reasons government set up the STC thereby indeed creating a monopoly for procurement of these products with the proviso that there could be no “abuse” of such monopoly being given that government owned 100% of the shares of the entity and would therefore have to bear the rash of popular discontent. In fact the STC constitutes one of the principal instruments of implementation of the Welfare State by subsidizing the costs of flour and rice and “managing” the cost of petroleum products.

It is against this general background that one struggles to understand the logic behind the privatization of the most critical part of the supply chain for procurement of petroleum products by the last government. It has transferred what is viewed as a “public interest” function from an entity that is albeit structured as a private company under the Companies Act but is nevertheless subject to general policy guidelines from the government of the day, to a family private company.

How does one reach a conclusion that a matter of national interest and strategic importance is better taken care of by a private company than a government controlled entity?

Those who blame Mr Veekram Bhunjun, CEO of the Betamax Group, for being “anti-patriotic” because he has taken all legally available means to secure the interests of his company are way off the mark in their reasoning be it on moral or legal grounds. Indeed he has acted in strict conformity with the Companies Act as regards the responsibilities which accrue to a director. It is to say the least naïve to believe that a businessman would or should allow the “national interest” to prevail over his pecuniary interests although sometimes in very rare circumstances the longer term interest of a company can justify such a course of action.

 

*  Published in print edition on 8 December 2017

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