Since 2003 Mr. Leslie Miller, Minister for Trade and Industry has waged a one man verbal war against the local oil industry – both the wholesalers and retailers – while promising relief for the Bahamian motorists from the high cost of fuel.
The benefits that accrue from lower prices are numerous. There is confusion however about the plans the Minister may have to achieve this desirable end.
Following is a brief outline of events over the past two years.
– Initially Mr. Miller charged the local oil companies and gas stations with gouging the Bahamian driving public. On this assumption, a National Energy Corporation (NEC) was proposed to lower the cost of fuel at the gas pumps. He assumed that the NEC would replace the oil companies in the oil supply chain and would pass the excess profits on to the customer. No evidence has been supplied to support this claim; and, in fact, government’s track record of effectively managing any business enterprise is less than stellar.
– Then, after being wooed by President Chavez of Venezuela with PetroCaribe, an oil financing deal, the language became a little more hostile and it was suggested the price of gasoline at the pump would be reduced to $2.60 a gallon.
– Earlier this year, the “heat” was turned up, but recently the focus has been turned on the foreign oil companies, the ones now identified as “the gougers”.
– After this, the rhetoric has intensified and it is now envisioned that the price of gas at the pumps will be reduced by 10% to 15%. With gasoline now selling at approximately $4 a gallon it will be reduced to $3.40 if a 15% reduction materialises. Nowhere near the promised $2.60 per gallon.
– Most recently the focus has shifted from lower prices at the pumps to promises of significant savings on electricity and the PetroCaribe oil financing deal is touted as good for the Bahamas Electricity Corporation (BEC).
The PetroCaribe document and proposed bi-lateral agreement do not include a discount on the price of oil; but propose to sell oil on deferred credit. But, it also incorporates the additional obligation of joining the Bolivian Alternative for the Americas (ALBA), intended to be a rival to United States initiatives. So we suspect these have caused Mr. Miller to change the focus of the discussion.
Russell Roberts, professor of economics at George Mason University and the Features Editor at the Library of Economics and Liberty recently wrote: “Friedrich A. Hayek, in The Fatal Conceit, wrote that "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Unfortunately, when politicians try to dial down prices to preserve order, they only worsen the problem. We would do well to remember the emergent nature of prices, especially in times of crisis.”
Mr. Miller, and his Petroleum Usage Review Committee (PURC), hope to convince The Bahamas that they can design a perfect petroleum market and consumers will not be affected by the shocks of the world market for fuel. However, now that the rhetoric has changed from arranging huge savings at the pumps to providing huge savings on electricity bills through BEC, maybe Mr. Miller has stopped believing his own promises?
As pointed out in this article titled Gasoline & Price Controls back in 2003, the factors determining the price of fuel do not include the Minister of Trade’s pronouncements of what margins the oil industry should maintain. Supply and demand are the determining factors, and no individual can control either for very long.
The rise in prices is due to the increase in the world demand…principally India and China…and the increased perception of uncertainty in existing supplies from the Middle East, Nigeria, Venezuela, etc. In fact, Venezuela owns the refinery in Curacao from which most of the fuel entering The Bahamas is imported. So if Mr. Chavez wanted to lower the price of fuel, he could simply discount the price on the purchases from his country’s refinery?
It is also worth noting that Venezuela owns the Citgo gas stations in the United States, but the cost of fuel at those stations is sold at the market price…not below.
In closing, it is not clear why the country would be encouraged to sign the draft bi-lateral agreement with Venezuela before Mr. Chavez agrees to recommended changes. While it is also unclear what the terms of the bi-lateral agreement for The Bahamas are, it is understood they are all very similar, so a review of the Jamaican bi-lateral is useful. Click here to read what is understood to be the Jamaican/Venezuelan bi-lateral agreement.
It is obvious Mr. Chavez is playing political games and is not as generous as he would like Bahamian and Caribbean politicians to believe. So please Mr. Miller, let’s scrap the PetroCaribe deal.
The Nassau Institute