Better to import fuel

I SUPPORT the National Research Institute’s stand on the fuel fiasco.
InterOil’s “project agreement” with the State of Papua New Guinea requires all domestic distri-butors to purchase all petroleum products from its refinery at import parity price.
This agreement stops any fair competition from cheaper import fuels to be brought in by competing distributors.
Initially, InterOil successfully convinced the Government that its refined products would be sold at import parity price.
It thought it would benefit from freight costs and refinery margins by refining local crude.
What InterOil and the Government failed to factor into their planning was the high oil price and its associated high production costs.
The hydrocarbon industry worldwide is faced with increased costs for products and services to meet the high demand triggered by high oil prices.
Secondly, basic economics in the hydrocarbon refining business is that you have to have a big refinery to economically sustain operations.
A number of refineries were shut down in many parts of the world by big players like ExxonMobil, Shell and ChevronTexaco to focus on operating bigger and optimally-located refineries.
The objective was to mainly cut down the total production cost in order to deliver competitively-priced products.
The InterOil refinery is a small operation and fails to deliver the advantages of what bigger refineries can deliver.
At the same time, the PNG economy may not be big enough to sustain operations of a bigger refinery.
From this perspective, PNG would be better off to rely on importing fuel which may be cheaper than InterOil’s locally-produced fuel.
The Government and InterOil should immediately demonstrate to the people and the business community if the current formula is compatible with an import parity price which should be seamless with landed costs of imported fuels.
An independent commission of inquiry should be immediately formed by the Government (or the Ombudsman Commission) to review the price increase with the assistance of experts to ensure that the interest of this nation and its people are protected.
It is a crime to change the rules after agreements have been executed thus making the people of PNG pay for our leaders’ short-sightedness in supporting such ill-conceived projects.
Economists should carry out a proper study on the net benefit to the PNG economy of having to cope with the Napa Napa refinery.
A decision should be made purely on a commercial basis as to whether to review the current restriction of competitively-priced import fuels.
What our leaders in the big haus at Waigani need to understand is that higher fuel costs not only impact on vehicle owners and operators but the entire population everyday.
Prices of goods and services including air fares, rice and other essential food and medicine especially in the Highlands and other parts of PNG will reflect this 10% increase in costs.
Our cost of living will increase whilst our earnings will remain same.
This Government cannot plead ignorance and I hope the people of PNG wake up to it.
It appears the Government is not interested in its citizens but supporting InterOil to get rich.
What needs to be done from my perspective is that InterOil has breached the initial agreement and therefore the Government has a golden opportunity to rip it up and start anew with the sole intention of allowing global market forces to come into play.
This will allow the citizens and the business communities to get a competitive price for fuel.

Bush Economist
Port Moresby