"You cannot negotiate with people who say what’s mine is mine and what’s yours is negotiable."— J F Kennedy.
The suspension of fuel supplies to Unipet by Paria Trading for non-payment was front-page news last week. Mr Imbert made much of the amount due by Unipet ($104 million after a payment of $64 million) and the fact that Unipet would not sign an agreement. Readers might not be aware that $100 million barely amounts to two weeks supply of fuel. By December 6 Unipet gas stations had run out of fuel as the retail petroleum supply chain is very short and supplies must be replenished quickly. The problem is both one of cash flow and viability of the dealer’s operating margins. This business model is unsustainable.
Unipet is not alone in this imbroglio. There are 117 independent petroleum dealers (T&T Petroleum Dealers Association) who operate gas stations with the NP label, who face all off Unipet’s difficulties and pay for their gas on delivery or in advance. The central issue is wider than the impasse with Unipet. It involves the business relationship between state monopoly power and the viability of the private sector operators.
There are several parallels. The Education Minister said that he will not be held to ransom by school bus operators whom he has not paid for transporting the nation’s children. They too need to be paid on time to meet their expenses. NGC as aggregator suspended the supply of gas feedstock to CNC last year because they could not agree on a price. Contractors face the same issues. Many businesses small and large will verify that the State cannot be depended on to meet its obligations in a timely fashion. Ask those waiting on VAT refunds of $5 billion plus! You can play hardball when you have a monopoly. My way or the highway!
Fuel prices are controlled by the State at the pump. Paria Trading and NP are both wholly-owned and controlled by the State. Indeed, NP, not the Energy Ministry, is the de facto regulator. The narrow issue is the viability of the gas station operators and the margins on which they must live whilst effecting government policy. The issue is not new and has been the subject of ongoing discussion over several years and many administrations. Indeed, the dealer margins have dropped from a high of 20 per cent in the early years to 4.5 per cent today.
The immediate difficulty has been exacerbated by the increase in the Business and the Green Fund Levies (which are calculated on the gross sales of petrol ie, the retail price) which amount to one per cent and the increase in the minimum wage. Additionally, increased use of plastic as a payment method carries a bank charge 1.5% of the gross sale and NP charges five cents for rent on the sale of every litre of fuel. That leaves little to pay expenses.
Further, the measurement systems at Paria’s supply base are outdated and do not take into consideration evaporation all of which add to the erosion of product and therefore margins. Operational costs have also increased in the normal course of business due to the need for security. Both Unipet, NP and independent operators are operating at a loss as evidenced by their published financials. All of which affects cash flow and the ability to pay. An Express editorial wondered whether NP pays its bills to Paria and does so on time.
Sceptics have argued that dealers would have exited the market if they were losing money. Easier said than done, as gas stations tend to be family properties that have only been used as gas stations. Remediating the station to alternative use in accordance with EMA regulations costs more than the real estate value. No one wants to lose their capital. And they have been trying to get the matter addressed, unsuccessfully, for years.
These complaints have been ongoing, and the impasse was anticipated by Unipet who commissioned a study in 2016 which demonstrated that the situation was untenable. No one listened. No business can survive indefinitely if it is losing money. Everyone expects that debts should be paid on time by all economic actors, the Government included. The Government’s narrative led by the prime minister himself is aimed at demonising Unipet whom he accused of a "sense of entitlement" in his diatribe in Parliament on Friday. This response is populist and dangerous. Neither Unipet nor the petroleum dealers are unreasonable people who do not want to pay what they owe.
Business arrangements must be viable to ensure continuity. If the Government cannot get the retail distribution of fuel right, will the more difficult strategic energy issues be addressed adequately? There is no public transportation system and commuters do not need an additional headache. This is a business problem requiring a sensible business solution. The Government cannot respond in a spontaneous and ad hoc manner to what is a long-term policy issue of its own making.