MANY HEADS MAKE GOOD POLICY

THE STANDARD
NAIROBI, KENYA
October 13 2008

By Dominic Odipo

When global crude oil prices rise, local oil marketers immediately jerk up their pump prices even though they are still selling stock bought at earlier, lower prices. Their excuse is that they will need more dollars to buy the next barrels of crude oil.

But when these crude oil prices fall, the companies do not cut their pump prices even though, going by their logic, they would now require fewer dollars to buy the next barrels of crude.

When the shilling gains on the dollar they keep their prices up, even though they need fewer shillings to buy crude.

The National Energy Conference held in Nairobi last week, served many different purposes. One of the more important was to subtly expose some of the convoluted logic through which oil marketing companies are daily fleecing the public. The economic principles that underpin and drive the operations of local oil companies must make sense, not only to the oil companies themselves but all round.

Directly following from here, the conference made one point absolutely clear: That the Ministry of Energy cannot sit on the sidelines and let oil companies continue acting with such impunity in their singular pursuit of private power and profit. If the oil companies cannot operate responsibly in an open market, the ministry owes it to the people to do something.

The question, now, is what the Government can do, especially in the short term, to ensure oil companies do not unduly exploit the public through predatory pricing policies.

At first glance, the obvious solution would appear to be the re-introduction of selective price controls within the petroleum sector. But, as the ministry knows well, this is not an easy option.

There are a number of formidable conceptual and practical obstacles.

Conceptually, there is the basic question of introducing an oil price control regime in an economy that is solidly free-market while keeping such controls out of the rest of the economy.

To put this another way, if you introduce price controls in the petroleum sector, what other controls will you have to introduce — and in what other sectors of the economy?

Practically, there is the basic question of whether the country can effectively manage a comprehensive price control regime in the petroleum products sector. Does the country, or the Ministry, have the capacity to do so?

Nevertheless, something will have to be done to keep rogue oil firms on a leash.

Controls

When the technocrats at the Energy ministry finally manage to peruse all the expert papers presented last week, they could discover that direct price controls may not be the only way out of this energy crisis.

As the Irish say, there are more ways of killing a cat that choking it with butter.

But perhaps the most important message that echoed out of the National Energy Conference was just the simple, underlying idea behind it. Bring as many energy experts and practitioners together in one place for several days to focus exclusively on how major problems in the country’s energy sector can be resolved.

This basic philosophy may sound commonplace but it is in fact much more powerful than it appears.

Have you ever heard of a National Defence Conference being held at the Kenyatta International Conference Centre in Nairobi to thrash out our national and regional defence policy options so as to produce some sort of national consensus?

Have you heard Moses Wetangula, the Minister for Foreign Affairs, even just ‘threatening’ to host a National Foreign Policy Conference in Nairobi?

Does it then surprise anyone that this country has neither a national defence nor foreign policy that we can speak about or refer to?

Does it surprise you that Kenyan envoys overseas rarely stand up in any major international forum to say anything that anyone would remember the following morning?

They keep their mouths shut because they have no consistent defence or foreign policy that they can push or articulate. And they don’t have such policies because the relevant ministries don’t go out of their way to search for, define and refine them.

Let these ministries now take a leaf from the notes of the Ministry of Energy.

Imagine what would happen if the ministry in charge of all our arid and semi-arid lands called a national conference to chart out how to turn these lands into bread baskets within five years! If that would not be a ‘game changer’, as the Americans say, it would certainly mark the beginning of a new ball game.

And, on a lighter note, many of us would finally get to know what the name of the man in charge of this ministry is!