Thursday, September 15, 2011

Bahamas: The gas retailers are slaves to big oil and so is the Bahamian government

No mercy from oil giants



By NOELLE NICOLLS
Tribune242 Staff Reporter
nnicolls@tribunemedia.net

Nassau, The Bahamas


Just over twenty years ago, the notorious regime of the Medellin Cartel came to an end, when a long series of gun battles resulted in Colombian police killing drug leader Pablo Escobar. Mr Escobar was said to be a violent mercenary responsible for the murder of hundreds of government officials, police, prosecutors, judges, journalists and innocent bystanders. He was the last survivor in the powerful drug cartel, infamous for its violent past and of smuggling cocaine into the United States.

This article is not about cocaine or drug cartels; however, it is useful to understand what the Medellin Cartel represents to understand the extent of the oppression felt by petroleum retailers in the Bahamas in relation to their petroleum bosses, Esso, Shell, Chevron and the Freeport Oil Holdings Company, Ltd. (FOCOL).

"The Medellin Cartel, you know they are notorious for killings and murders; they have more heart than oil wholesalers in the Bahamas. They have more love for their victims than oil companies have love for the Bahamas," claimed one gas retailer, who wished to speak anonymously.

Take Esso, for example, owned by the most profitable country in the world, Exxon Mobile. Esso is "king" in this town, said one government source.

Esso owns the only jetty at Clifton Pier that pumps oil from the barges into racking trucks for distribution. Esso collects millions in transfer fees from the largest wholesaler, the Bahamas Electricity Corporation (BEC), along with all of the other private wholesalers, for use of its jetty. In turn, according to Leslie Miller, former Minister of Trade and Industry, the oil company pays the government a pittance of $10,000 annually to rent the sea bed. He said the Bahamas is the third largest consumer of oil in the English speaking Caribbean.

That is right, according to Mr Miller, Esso pays the Bahamian people $10,000 a year, to run an extremely profitable business at one of the most important historical sites in New Providence. It pays $10,000 a year to operate a business that routinely contaminates the air quality and the sea quality at one of the most sacred old sea ports in New Providence. And the Bahamian people, the government included, are powerless to do anything about it. What does that say about the notion of Bahamian sovereignty?

This fee dates back more than 40 years, according to Mr Miller, during the era of the United Bahamian Party (UBP) government. It has gone unchallenged since, he said. When he got wind of the situation as minister and agitated for change, Mr Miller said he was shortly after transferred from trade and industry to agriculture and fisheries. This unsurprising move is indicative of the powerful external forces at work in Bahamian politics.

Esso is reputed to charge the highest rents, between $15,000 and $24,000 per month, and the highest franchise fees, 8 per cent, at its retail sites. One retailer claims that it is cheaper to rent square footage for a store in New York City, one of the most expensive cities in the world, than square footage on Bahamian soil to franchise an Esso service station.

The franchise agreement is a noose around the neck of Bahamian business people, dictating everything from stock levels, operating hours, dress codes, layout of the convenience store, and products to be sold. One retailer said his service station makes no money between 1am and 6 am, but he is forced to stay open and pay people to watch a building because his "slave masters" say so.

There is supposed to be a fundamental separation between the wholesale business and the retail business, according to the national investment policy, say retailers; however, in practice, the separation is a lie.

When Chevron took over from Texaco a few years ago, retailers say this relieved some of the burden on Texaco retailers, because they no longer took out a percentage in franchisee fees, but word has it that Chevron is currently being sold again, so there is no telling what the future could hold.

"Nothing is at the discretion of the dealers. They are basically powerless. They are puppets for the oil companies," he said.

Retailers incur all of the costs of site maintenance, including equipment repair, landscaping, plumbing, electricity, water, staffing.

The oil companies mandate that their retailers pay exorbitant fees for "useless" customer service training. Even though the oil companies insure their buildings and equipment, they mandate retailers also pay insurance: not for security reasons, but so that the oil companies can obtain a lower rate of insurance on their payments.

To alter the conditions of a franchise agreement for a gas retailer would mean closure, because the oil companies could yank their equipment and close up shop, leaving the retailer saddled with debt to a bank that ultimately cares only about getting paid.

The list of complaints goes on, and they are relevant, not only to Esso, but all of the oil companies, including Sun Oil Bahamas, which uses the Shell brand under license. Retailers claim, "The sunshine boys took over from the Bay Street boys and carried on the same old tactics." FOCOL is owned by a mixed bag of political types with Franklyn Wilson and Sir Orville Turnquest among the shareholders. Sun Oil Bahamas is a subsidiary of FOCOL.

These views, nonetheless, stand in stark contrast to views expressed by others, like the former energy minister, who cautioned me not to be fooled by the crocodile tears of gas retailers.

Mr Miller pretty much labelled some of them as "greedy scoundrels" who could not be trusted, because, in his view, their constant cries for margin increases are unfounded.

One gas station owner said about three years ago he was able to make $200-$250,000 in annual profit. At that rate of profitability, Mr Miller suggested there was nothing wrong with the margins. Another gas retailer said those profit levels are the stuff of fantasy today; in less than one year his overdraft with the bank quintupled. There is no doubt, retailers carry a heavy load. They virtually subsidise the industry, said one source. With so much debt to contend with, it is not easy to get out, and with no power, it is hard to survive.

Although full of enthusiasm and insight, Mr Miller speaks with an embittered heart. He said he was able to bring about $80 million worth of savings in the pockets of Bahamian consumers, for which he is very proud. But he admits, in the face of very powerful forces working against the interests of the Bahamian people, he failed to create fundamental change in the local industry. At almost every turn - Liquefied Natural Gas, Petro Caribe - his efforts were rejected by the Bahamian people, the Bahamian government and various unseen, external forces.

Mr Miller claimed that the United States' government, through the Embassy in Nassau, was one of those powerful forces working counter to the interests of the Bahamian people. They would pressure the Bahamian government to back off the oil companies. Naturally, the US Embassy in the Bahamas is here to secure the interests of its citizens and corporations, the latter being more important, despite the rhetoric.

It is claimed that oil companies are so powerful globally that they even have the American government, senators and congressmen included, slaving for them, inside and outside their own country. Imagine how much power the Bahamian government, much less the local gas retailers, would have in face of those geopolitics.

Profit margins are only one part of the debate. The more fundamental argument is about the nature of the relationship between wholesalers and retailers. Any reasonable analysis of the Bahamian oil industry, weighed with global oil politics, would determine there is an inherent lack of equity with the current structure, and local gas retailers get the shortest end of the stick. There is no arguing the need for fundamental change in the Bahamas.

Problem

Successive governments have tried to patch up the problem, but no one has yet been able to bring about the kind of fundamental change that would really work in the best interests of the Bahamian people, business owners included.

Minnis Service Station on Market Street is one of the few independent stations around. It started out as a Shell retailer, about 50 years ago, operating as such for about 21 years. Mr Minnis said at that time black people did not know much about business and they were "given a sip of water and made to believe they had a gallon."

He owned his property on Market Street, but not having the resources or expertise at the time to set up a gas station, he entered a lease agreement with the oil company to develop the land. Once complete, he said the oil company leased the business back to him. After 21 years, he said he decided that he no longer wanted "a job" working for big oil. He wanted to provide "a service" to his people under the dictates of his own business.

So Mr Minnis said he refused to sign anymore lease agreements and set out to become an independent gas retailer. Shell came and packed up all of its equipment, its signs and compressor, and refused to sell gas to Minnis Service Station without a lease agreement. After a solid business relationship for 21 years, Mr Minnis said he was left out in the cold and all because he wanted to develop himself in a manner that suited his own best interests.

At times, Mr Minnis said he would have to work a deal with a friend, who owned a nearby station, to get gas for his tanks.

Mr Minnis said his views are from "the stone age," but how he sees it the global economic system has people "trapped in a cage."

Replaced

Corporations have replaced the old colonial masters and the old slave masters, he said. Within the system, some people are made to believe they live in a mansion, and if they work really hard they can own it, when all the time they are simply trapped in a cage, in the dungeon of the master's house. That is the farce of the petroleum industry and the West World, said Mr Minnis.

The gas retailers are slaves to big oil and so is the Bahamian government.

One gas retailer said the industry progressed over the years away from independent stations, because the oil companies saw an opportunity to make more money. He said in the decades prior to the '60s and '70s, the retail industry was operated mainly by white Bahamians who owned independent stations. The oil companies only profited from the sale of fuel, which is the only thing they rightly should, according to retailers.

Not being satisfied with this model, the oil companies sought to buy out the retailers and set up their own competing retail outlets. This way, they could collect rent, franchise fees and profit from the sale of oil.

Government regulation facilitated the wholesalers, because a long-standing moratorium on retail licenses forced interested business people to obtain franchise agreements through wholesalers in order to operate a retail outlet.

Some 50 years later, independent retailers are almost a thing of the past, in New Providence, where the big oil cartels reign supreme. The independent model is applied in the Family Islands today, presumably because the oil companies do not have an interest there.

According to one source, one of the reasons for the moratorium on retail licenses was the proliferation of service stations. He claimed this is yet another side effect of wholesalers having their fingers too deep in the retail pot.

Wholesalers get their money up front, so they are not concerned about the market being flooded with service stations. The risk and the burden of debt lie on the retail operators.

If the government were to regulate the industry properly, retailers claim it would bring about consolidation and eventually level out the number of stations. Those remaining stations would become more viable and more profitable, said a retailer.

As for resources and expertise, retailers claim wholesalers no longer need to do it all. Bahamians have sufficient expertise and access to financing to develop their own service stations. And if wholesalers moved out of the picture, they could do so profitably.

Bahamian retailers say wholesalers, whether foreign or Bahamian owned, need to get out of the business of retailing. Wholesalers should stick to the business of oil exploration and import, and leave retailing to local businesses. Retailers claim there is a consensus that independent gas retail is a better option for Bahamian businesses.

September 12, 2011

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