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TPDC re-engagement into oil importation long overdue
2006-07-26 10:07:28
By Editor
When the oil trading sub-sector was liberalized in 1999, the assumption was that private traders were better placed to provide supplies at competitive prices.
State monopoly through the Tanzania Petroleum Development Corporation (TPDC) and partly the now defunct Tanzania-Italian Petroleum Refinery (TIPER) were thought to be inefficient by all standards.
A liberal policy-decision was adopted to the effect that private oil companies were allowed to import and vend the product in Tanzania. Given the upturn of the economy, this strategy was also taken as one of the measures for increasing government revenues through tariffs.
At the same time, however, TPDC was banned from doing the same business in the anticipation that many private oil companies would come forth and make the oil trade truly competitive.
As it has eventually happened as of now, not as many companies turned up for the oil trade. We are only having a few of them, creating a business environment called oligopoly, which does not ensure practical competition nor fair trade as one would have expected.
Of late, we have experienced the outcomes of oligopoly.
Despite government’s initiative to waive value added tax (VAT) on petroleum products, the pump price has not at all decreased in favour of the final consumer.
This has alarmed even the government itself, for sustained higher oil prices will push up cost inflation, with the obvious danger of once more reaching the two digit figure.
Somehow, policymakers had gone astray somewhere; by thinking that privatization is equal to killing whatever is state-owned.
In fact, to allow state-run sector to compete in similar lines of business with private sector is part of public-private sector partnership.
The point is, you either let it survive through competition. If it does not survive, it will die a natural death, but, according to some experiences in Eastern Europe, they will never pass away.
Some formerly state-owned enterprises have in fact, undergone massive internal rationalization, ending up becoming formidable competitors to private companies engaged in similar business endevours.
Now, it is obvious that it was absolutely wrong to ban TPDC from the oil trade.
Analysts are happy that the government has reversed its seven-year-old decision to forbid TPDC from oil trading engagement.
This will engender more competition, all things being equal.
In the interim, as TPDC re-readies itself to preparing a comprehensive business plan as required by the government, it should, from the outset, distance itself from becoming just ’another oil trader’.
Going by the dictum of business dictatorship, the oil oligopolists may resort to buying entire TPDC’s oil stocks and create artificial shortages. In the end, the whole strategy becomes futile.
TPDC has the experience of breaking the bulk, therefore, we propose that it should establish its own retail outlets and allow competition and consumer choice to determine the consequences.
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