COERCIVE MONOPOLY

on   /   in Broken Links 12:17 am   /   Comments

In this column two Mondays ago, we wrote on the need for a competition or anti-trust law in Nigeria. There were several reactions. But this was particularly interesting and I decided to let our readers have the benefit of knowing what is happening in some sectors of the Nigerian economy.

By YUSUFU ABDULLAHI

economyThe responsibilty and portfolio of the Federal Ministry of Trade and Investment is to attract investment, encourage trade and develop a policy in promoting and retaining vital instruments and vehicles for economic development of Nigeria.

It is also the objective of the Ministry (MTI) to sustain the economic development through private sectors as drivers in Trade and Investment. Consequently, the Ministry (MTI) is to promote competition in the sectors and not to promote and grant monopoly to any Institution, private sector and government agency.

The Ministry (MTI) should work against Monopoly in the economy. “Many businessmen”, observed Ayn Rand in her article, the Property Status of Airwaves, “of the mixed economy persuasion, resent the actual nature of capitalism; they believe that it is safer to hold a position, not by right, but by favour; they dread the competition of a free market and they feel that a bureaucrat’s friendship is much easier to win.

Pull, not merit, is their form of ‘social security’. They believe that they will always succeed at courting, pressuring or bribing a bureaucrat , who is ‘a good fellow’ they can ‘get along with’ and who can protect them from that merciless stranger; the abler competitor.”

Coercive monopoly is dangerous to any economy as reflected in economic history around the world. Consequently, it is the responsibility of the Ministry (MTI) to guide and disseminate vital information and lessons to other government Ministries, Departments and Agencies against the negative nature, effect and danger of coercive monopoly and negative side in its promotion in the Nigerian economy.

For instance, when in 2005 the President declared OILSS.

SIIFZ, LFTZ, OLOKOLA and LADOL as a Free Trade Zones, Ministry of Transport (MT) which was relevant to the approval was administratively informed by Mr. President because of the Presidential Circular PRES/99 of 22nd May, 2002 on Stoppage of Mid-stream Discharge of Cargo and Presidential Circular letter PRESS/00 of 22nd May, 2002 on Closure of Private Jetties Nationwide, which technically would affect the smooth running and operation of these free zones because the circulars preceded the declarations and if not taken care of the contents of the circulars, it would negatively affect the smooth running of the free zones.

Naturally, the free zones are situated mid-stream being Islands and they should have entry and exit points by the concept of free zones. However, the Ministry of Transport concerned, tends to ignore the Presidential declaration of the free zones because of its involvement in the operation of another player in the same field of free zones.

The player is a tenant in the ports where the Ministry of Transport has supervisory authority. Any time there was a change of guard at the Ministry of Transport; these Presidential Circular letters are dusted up and circulated with different intention. One example was Operational Guidelines for Handling Oil and Gas Related Cargoes issued out on Ref T’ 4316/S.35/Vol. 1/ 213 of 15th November, 2007 from the Ministry (MT). The Industry challenged the validity of such Circular knowing that Mr. President had earlier approved on 17th May 2006, the dispensation that” importers of oil and gas cargo should be free to choose port of preference”. However the Ministry of Transport insisted and acted vides T. 0160/S. 103/C2/T1A/176 of 27th March, 2008 against the dispensation of Mr. President on AGBAMI PROJECT where MV Enchanter destined to Lagos was told to go to Onne, Calabar and/or Warri to pay terminal charges after which the vessel could proceed to discharge its cargo in Lagos. Nobody told the industry how the extra cost of round trips would be covered which the Office of the Chief Economic Adviser considered as economic sabotage.

The reason for this roundabout trips by ships, going to Onne, Calabar and/or Warri before off loading its cargo say, in Lagos, was because of the out- sourcing of the statutory responsibility of the Nigeria Ports Authority in awarding Managing Agent Contract to the same private operator in Onne, Calabar and Warri to monitor and supervise support vessel movement in the compulsory pilotage districts within the exclusive economic zone of Nigeria – both eastern and western districts. Though Mr. President had also asked the Ministry of Transport to annul the contract with the private operator, Ministry (MT) had not done so.

Realistically, the Ministry of Transport has turned the Presidential Circulars and directives into a coercive monopoly documents assisting that major player in the field of oil and gas logistic services to dominate the market. The intervention of the stakeholders in the industry through the Office of Chief Economic Adviser to the President resolved the issue where Mr. President forced the Ministry of Transport to withdraw its Circular Letter and reverted to the Presidential dispensation vide T. 4316/S. 35/T3/24 of 7th August, 2008, of allowing importers of oil and gas cargo to choose port of preference.

But just as mentioned above that immediately there was a change of guard in the Ministry of Transport , the two Presidential Circular letters are dusted up and reinsured, more especially in this case where the Ministry of Transport had failed to satisfy the private operator’s goals and objectives in 2007, the new Minister of Transport reissued same Circular letter to the Nigeria Ports Authority reference T.0160/S. 139/C. 2/IV of 7th January, 2009 to the effect that “ STOPPAGE OF MIDSTREAM AND OFFSHORE DISCHARGE OF CARGO AND BAN OF PRIVATE JETTIES FROM HANDLING OCEAN GOING VESSEL” were still in effect and copied NNPC, Port Concessionaires, NAPIMS and Oil Producing Services/Project Companies, these agencies are the main business partners of the private operator and tenant to the Ministry of Transport.

The latest Circular letter was a challenge to the Presidential order given to the Ministry of Transport in 2008 which it was forced to reverse it.

This Circular letter of 2009 was also released because the Nigeria Custom Services letter to the Managing Director, Nigeria Export Processing Zones Authority on the same issue had failed to address the requirements of the private operator in stopping other free zones from getting into oil and gas industry and could not give them the expected sought monopoly as discussed below.

The forced reversion of the Ministry of Transport’s circular by the Presidency shifted the battle ground to the Nigeria Customs Service which obliged the private operator and the Ministry of Transport with a broad Circular NO. 041/2008 Reference NCS/T&T/I&E/092/S. 3/Vol. 111, issued on 20th November, 2008 addressed to the Managing Director, Nigeria Export Processing Zones Authority (NEPZA) and widely published in the newspapers and other medias, three months after the directive of Mr. President to the Ministry of Transport to withdraw its offensive circular letter. In the Custom’s circular, the arrow head of its circular were obviously – LADOL, OLOKOLA and SIIFZ.

However, realizing implication of its circular and how it would have affected the smooth running and operation of the free zones especially that they should have exit and entry points, approved by the President and also not being under the supervision of the latter Ministry of Transport, the Custom Department, at paragraph seven of its circular, explained its intention in that “no customs port in Nigeria has been approved to operate as a free port. Free zone goods should be imported through a customs port; where such goods will be processed in accordance with the provisions of NEPZA Act No. 63 of 1992…” Paragraph 8 of the circular addressed the particular free zones intended to be shackled because of their involvements in oil and gas activities in the country, and where AGBAMI PROJECT was situated, LADOL and SIIFZ axis. Nigeria Custom Services Circular was specifically addressed to the Managing Director, Nigeria Export Processing Zones Authority to drum in its point

Nigeria Oil and Gas Industry Content Development Act of 22nd April, 2010 and PIB Bill when enacted, would be difficult to execute as long as coercive monopoly is indirectly condoned, applied and granted to facilitate the operation and monopoly of one of the players against many in the industry by different Ministries, Departments and Agencies of government. These are the challenges free zone enterprises are going through especially as it affects area of high cost of services charges made by some of the free zones managers (the effect of monopoly) and these were brought up during the audit visit of the Free Zones Reform Committee and also during the Oil and Gas/Trade and Investment, Forum at Onne 2012 by the free zones enterprises in attendance at the forum.

“No one has been able to establish a coercive monopoly by means of competition on a free market. There is only one way to forbid entry into a given field of productions or services – by law. Every coercive monopoly that exists or has ever existed anywhere else in the world was created and made possible only by an act of government: by special franchises, licenses, subsidies by legislative action which granted special privileges (not obtainable on a free market) to an institution, or a group of private sectors, and forbade all others to enter that particular field,” observed Nathaniel Branden in his works on Common Fallacies about Capitalism. Free zones operating around the Nigerian sea ports are denied the privileges of competition by the Ministry of Transport using the Presidential Circulars of 22th May, 2002 in ‘providing special privileges’ turning the circulars into ‘special licenses’.

In fact, Government administration should not be as static as the Ministry of Transport is trying to make us believe that after the 2002 circulars, ten years and going on, the Ministry of Transport could not find solution to the problems of Mid-stream loading and offloading and Private Jetties, that the Minister of Transport himself, announced at the Oil and Gas/Trade and Investment Forum at Onne 2012 that ‘the two circulars’ were “still in effect”.

Nevertheless, this being the case, the President, aware of the two circulars of 2002 on Stoppage of Mid-stream Discharge of Cargo and Closure of Private Jetties Nationwide, had copied his approvals on declaration of the free zones in 2005 to the same Ministry of Transport to enable it adjust and take proper administrative action to smooth the operations and running of the free zones.

In addition, the Federal Executive Council in 2002 concluded and approved of ONLY one Free Zones Authority in the country because the dualism of the Free Zones Authorities are also being used as a coercive monopoly in the sector of the economy – Oil and Gas sector because one of the operators is claiming that the Oil and Gas Free Trade Zone Act had given it sole responsibility on oil and gas activities in the country. The government has therefore directed the merger of the two Authorities in order to remove the perceived view of government supporting one player in the field of oil and gas free zones against others and also open the field of free zones to private sector participation in its development, which started in 2005.

This is one of the challenges the industry is battling with, with these two circulars and the dualism of the free zones authorities Acts, existing in one industry.

Federal Ministry of Trade and Investment was expected to finalize the merger as directed and approved by the Federal Executive Council Conclusions and Presidential approvals on the dualism of the Free Zones Authority in the country since 2007 without success. If these decisions are implemented by the Ministry of Trade and Investment, sanity would return to the free trade zones industry and the expected economic progress would be achieved in the area of local content development.

Alan Greenspan observes in his article “Antitrust” that “if entry into a given field of production and service is not impeded by government regulations, franchises, or subsidies, the ultimate regulator of competition in a free economy is the capital market. So long as capital is free to flow, it will tend to seek those areas which offer the maximum rate of return. Investors are constantly seeking the most profitable uses of their capital. If, therefore, some field of production and service is seen to be highly profitable (particularly when the profitability is due to high prices rather than to low costs), businessmen and investors necessarily will be attracted to that field; and, as the supply of the product and service in question is increased relative to the demand for it, prices fall accordingly.

The capital market,” writes Mr. Greenspan “acts as a regulator of prices, not necessary of profits. It leaves an individual producer and service provider free to earn as much as he can by lowering his costs and by increasing his efficiency relative to others. Thus it constitutes the mechanism that generates greater incentives to increase productivity and leads, as a consequence, to a rising standard of living.”

Now, if a company were able to gain and hold a non coercive monopoly, if it were able to win all the customers in a given field, not by special government granted privileges, but by sheer productive efficiency – by its ability to keep its costs low and /or to offer a better product or service than any competitor could – there would be no grounds on which to condemn such a monopoly. On the contrary, the company that achieved it would deserve the highest praise and esteem.

No one can morally claim the right to compete in a given field if he cannot match the productive efficiency of those with whom he hopes to compete. It is not free trade on a free market that creates coercive monopolies, but government legislation, government action, government controls. Federal Ministry of Trade and Investment should therefore enact a Competition Law just like the Canadian Competition Act or the United States Antitrust Law or Sherman Act of 1890 in the USA, to guide corporate competition to boost the Nigeria economy. Canadian Competition Act is a Federal law intended to prevent monopolies that regulate Canadian business practices.

It is enforced by the Canadian Competition Bureau and Competition Tribunal, which oversees mergers, trade, and commerce practices that concern industry competition. It ensures consumers have competitive products and prices. Without the Competition Law in Nigeria, the goals of ‘Nigeria Content’ in oil and gas sector would be difficult as explained under the Terms of Reference of the Committee for Free Zones Reform and also as emphasized by the 2006 Presidential Committee on Free Zones in that “NNPC through ‘Nigeria Content’ Division, develop synergy with Free Zones in order to ensure that their activities promote the achievement of significant local content in oil and gas related activities which will ultimately act as a driver for other sectors of the economy.”

Strategic Restructuring policy of the Reform Committee of Free Trade Zones and Export Processing Zones is tailored just around this philosophy to achieve above stated objective with Nigeria Content initiative. Competition amongst companies is therefore healthy to any economy because it breeds efficiency, brings cost of production down, reduce prices and increase general standard of livings. Competition is therefore healthy to the Nigeria economy. Coercive Monopoly is very unhealthy, dangerous to the economy, increase cost of production, charges higher prices, depressed the economy, breeds corruption and ultimately lead to high unemployment.

 

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