"OPEN LETTER" to the Fair Trading Commission on the Proposed Sale/Merger of BNTCL

Submitted by David Comissiong, President,Clement Payne Chambers

ftc

CLEMENT   PAYNE   MOVEMENT

CLEMENT   PAYNE   CULTURAL   CENTRE

CRUMPTON  STREET

BRIDGETOWN

BARBADOS

25 January 2017

Ms Sandra Sealy

Chief Executive Officer

Fair Trading Commission

Green Hill

St. Michael

Dear Madam

Re: Proposed Sale of the Barbados National Terminal Company Limited and its proposed merger with the SOL Group of companies

I write this “Open Letter” to you as a Citizen and taxpayer of Barbados, and also in my capacity as President of the Clement Payne Movement of Barbados.

Over the past fortnight I have been approached by many individual citizens and residents of Barbados, and – in a more organized manner – by members of the Barbados Integrity Movement (BIM), expressing great concern about the proposed sale of the Barbados National Terminal Company Ltd (BNTCL), and its proposed merger with the Kyffin Simpson-owned SOL Group of companies. (I would also like to note for the  record that the BIM provided me with much valuable information about the proposed sale/merger.)

As you are aware, the statutory agency that you lead – the Fair Trading Commission – was established by the Government of Barbados in the year 2002, and was given a mandate to promote, maintain and encourage commercial competition in Barbados for the benefit of the Barbadian people. In addition, your agency was mandated to prohibit and prevent the restriction of competition and the abuse by large monopolistic enterprises of any dominant positions that they may acquire in any particular area of trade or commerce in our country.

It is also important to note that the other statutory agency with which we are concerned here – the Barbados National Terminal Company Ltd (BNTCL) – was established a mere four years earlier (in 1998) on the identical anti-monopoly principles of free and fair competition.

Indeed, the BNTCL was incorporated by the Government of the day following the closure of the Mobil Oil Refinery, and was designed to be a governmental corporation that would manage the storage and distribution of all gasoline, diesel, heavy fuel oil, kerosene, and aviation (jet) fuel imported into Barbados. And, as a governmental entity, BNTCL was required to relate to and service ALL of the private fuel and gasoline retail companies operating in Barbados on a basis of absolute fairness and equality.

Furthermore, the existence of the Government-owned BNTCL definitely benefitted the people of Barbados, in that the rate of return that BNTCL set for itself was a mere one-half of one percent, as against the previous rate of 12 per cent that Mobil charged when it ran the fuel storage facility! Thus, the state-owned BNTCL was not motivated by mere profit-making considerations, and instead set out to ensure that Barbadian consumers got the best prices possible for fuel products.

And so, over the past 18 years Barbados has consciously pursued a distinct state moderated anti-monopoly policy in the fuel distribution and retail sector of our economy, and this policy has worked well for our nation and people.

Now, however, there are signs that the “monster” of  private sector, profit driven, monopoly is rearing its ugly head in this sector of our economy.

At present, the fuel retail market in our country is controlled by a mere two companies – Rubis Caribbean which controls 30 per cent of the market, and the SOL Group which controls a massive 70 per cent of the market.

Now, this level of monopoly or oligopoly is extremely disturbing as it is: but, to make matters worse, we have recently learnt that the present Government – which was reelected to office in 2013 on a distinctly anti-privatisation platform – has entered into an agreement to sell the BNTCL (the company that owns and operates our nation’s only oil terminal) to the Kyffin Simpson-owned SOL Group, and to thereby bring about a “Merger” between the SOL Group of companies and BNTCL.

It is against this background that the Clement Payne Movement now hereby makes an official request that the Fair Trading Commission carry out a comprehensive investigation into this proposed sale of BNTCL to the SOL Group, with a view to exploring all of the possible “anti competition” and monopolistic implications of the said sale.

Indeed, we wish to remind the Fair Trading Commission that under Section 5 (I) (e) (III) of the Fair Competition Act, Chapter 326 C of the Laws of Barbados, the Fair Trading Commission possesses the power (and is bound by a statutory duty) to take such action as it considers necessary to prevent mergers that are detrimental to the principles that the Commission is mandated to uphold.

The Clement Payne Movement has paid very close attention to Section 20 of the Fair Competition Act, and we believe that this section of the Act provides your Commission with an excellent framework for analyzing the relevant facts and for ultimately determining that the incestuous sale of BNTCL to SOL must not be permitted to be consummated.

The relevant portions of Section 20 are as follows :-

(1)  From the commencement of this Act, all mergers by an enterprise that by itself controls not less than 40 percent of any market are prohibited unless permitted by the Commission in accordance with this section.

(Thus, in light of the fact that SOL already controls a massive 70 per cent of the market, a “prima facie” case already exists for prohibiting its merger with BNTCL ! Indeed, the Commission is obligated to begin the process with a preliminary decision in favour of prohibiting the merger – a decision that may only be reversed if there are really compelling reasons to do so!)

(2)  The Commission shall conduct an investigation into the proposed merger in order to satisfy itself that the proposed merger would not affect competition adversely.

(Mr Mauricio Nicholls, the CEO of Rubis Caribbean, has already publicly pointed out that competition will be adversely affected in that Rubis’ business in Barbados is dependent on the operations of the country’s only fuel terminal, and that with the proposed merger the said fuel terminal will be exclusively in the hands of Rubis’ sole competitor. One therefore cannot want any more  direct or compelling evidence of an adverse effect on competition than this!)

(3)  The Commission shall conduct an investigation into whether the proposed merger would be detrimental to consumers.

(SOL is a private sector company that operates on a profit maximizing principle, and that has to answer to its profit-demanding shareholders. No doubt, it will be driven by the desire to recoup the tens of millions of dollars it will have spent on acquiring BNTCL and by the additional desire to make a profit on its investment. Thus, only a purblind idiot would believe that such a sale and merger would not bring in its train  increases in retail fuel prices to the Barbadian consumer!)

(4)  The Commission shall conduct an investigation into whether the proposed merger will be detrimental to the economy.

(In the six years between 2011 and 2017 Rubis Caribbean purchased Chevron Texaco’s Barbados operations; invested an additional US $50 Million in Barbados; increased its number of service stations from 12 to 17; and is in the process of constructing its Caribbean headquarters building in Barbados. But, Mr Mauricio Nicholls, Rubis’ CEO, has publicly warned that if Rubis’ sole competitor – the SOL Group – is given the distinct and unassailable competitive advantage of owning the country’s only fuel terminal, that Rubis will have to reconsider remaining in Barbados. Therefore, the clear answer to the question is:- yes, the proposed merger would be detrimental to the Barbados economy!)

It should also be further noted that none of the factors specified in Section 21 of the Fair Competition Act for permitting a merger apply to this case. These factors are as follows:-

1.  A merger may be permitted if the parties establish that the merger is likely to bring gains in real efficiencies that are greater than the effects of the limitation on competition that are likely to result from the merger.

(It is difficult – if not impossible – to conceive of a more efficient arrangement than the one that exists now, with the state-owned entity fairly and even – handedly servicing all of the private sector retail companies, and at the same time looking out for the consumer by settling for a rate of return that is extremely modest and yet still sizeable enough to enable the enterprise to make a more than reasonable profit for the Government and people of Barbados. Thus, one CANNOT argue that the proposed merger will bring any gains in efficiencies, much less any gains that would be capable of off-setting the obvious ill effects of the limitation on competition that the merger would cause.)

2.  A merger may be permitted if one of the parties to the merger is faced with actual or imminent financial failure, and the merger represents the least anti-competitive alternative uses for the assets of the failing business.

(This is a total non-factor! Not only is SOL one of the richest, most powerful and most stable companies of Barbados, but no less an authority than Sir Frank Alleyne, Government’s former Chief Economic Adviser, has publicly described BNTCL as the “Crown Jewel” of all Government enterprises! Thus, neither one of these profitable and stable companies requires this proposed merger in order to survive!)

It is against this background therefore that we now call upon the Fair Trading Commission to do its duty and to protect Barbados and Barbadians from the spectre of unhealthy monopoly and the unholy restriction or distortion of competition that this proposed sale and merger portends.

We also remind the Fair Trading Commission that it is an INDEPENDENT entity that is governed by its own Act of Parliament, and that it not beholden to any particular Minister of Government or partisan political Administration.

We trust that the professionalism and objectivity of the Fair Trading Commission will shine through all of its dealings with this matter, and that there will be no need for recourse to the ultimate Review role that the Supreme Court of Barbados always reserves for itself in matters of this nature, particularly where duties are imposed and procedures stipulated by an Act of Parliament.

We now look forward to hearing from the Fair Trading Commission as soon as possible.

Yours faithfully

DAVID A. COMISSIONG

PRESIDENT

 

105 comments

  • Jeff Cumberbatch

    What BU is curious about is why has the FTC not posted the info on their website yet the Nation newspaper is given time to craft a story out of it.

    @David, the info is not on the FTC website because there has been no final decision in the matter as reported. What the newspaper probably had access to is a preliminary findings report that had been sent to the parties concerned for their final comments. Obviously, that fell off the back of a truck somewhere on one of the nation’s highways and the reporter ran with it.

    Like

  • Thanks Jeff, if time allows there is the opportunity to clarify for the public.

    Like

  • Jeff Cumberbatch

    It will be done on the morrow, I feel certain!

    Like

  • any one who had read the article with a clear understanding could not have mistaken that there was a 30 day window for Sol to present further evidence
    However the question as to whether Sol took such advantage was not stated but since the FTC has not posted a final resolution one would then belive the matter is still being reviewed in the hands of the FTC
    In my opinion The FTC weighed its first ruling in favour of consumerism with a fear that Sol would become the king of the Hill to the disadvantage of the consumer and free market enterprise system
    If this ruling stands it puts govt in a no win position as to not continue on a more aggressive austerity path in order to pay its bills
    For what it is worth the Unions might think twice before rattling the govt cage because with a govt hands tied behind its back in order to stave off further downgrades the Unions would have given the govt an opportunity to send the workers home albeit against a fiscal background where the oneness of govt was that of getting revenue from the sale of BNTCL to pay debt some of which is part civil servant wages,

    Like

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