CANADA’S INTEROIL POSITIONED FOR PNG MONOPOLY

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CANADA’S INTEROIL POSITIONED FOR PNG MONOPOLY

By Freddy Gigmai

PORT MORESBY, Papua New Guinea (The National, April 26) – The purchase of Shell Papua New Guinea by InterOil Limited early this year may have paved the way for the Canadian oil company to have monopoly over the oil market in the country; the National Research Institute said this week.

National Research Institute researchers Dr. James Yala and Ogis Sinida said, in a radio talkback show hosted by FM 100 on Monday, that the Independent Consumer and Competition Commission was wrong to allow InterOil to buy assets owned by Shell Papua New Guinea Ltd early this year.

The researchers said InterOil was an upstream processor and the approval by Independent Consumer and Competition Commission for it to buy Shell Papua New Guinea assets would mean that it will now have control of both the processing and distribution market, thus having a monopoly on the process of oil and fuel supplies in Papua New Guinea.

The researchers said Independent Consumer and Competition Commission had either misinterpreted the 2002 Independent Consumer and Competition Commission Act or the Act itself may have flaws in parts because the approval means that InterOil was now practically the market controller at the distribution level.

"I want to make it clear that any other individual or organization can buy Shell Papua New Guinea but not InterOil because they will eventually control the market," Yala said.

The researchers also said that Papua New Guinea was already burdened with the purchase of fuel based on the import parity price (IPP) and Independent Consumer and Competition Commission had made it worse when it allowed the Canadian oil company to buy Shell.

The researchers were also critical of Independent Consumer and Competition Commission’s regulation in the rice industry, saying that smaller competitors coming onto the market against Trukai Industries, which controls over 90 percent of the market, could be phased out making it an unhealthy industry.

Yala said the government must step in and create a forum where all these relevant concerns can be discussed by all parties, including Independent Consumer and Competition Commission, to promote competition as much as possible.

"Independent Consumer and Competition Commission needs to know that its role is not only regulating prices, but it has wider economic implications," Yala said.

Independent Consumer and Competition Commission commissioner Thomas Abe clarified yesterday that prior to the establishment of Independent Consumer and Competition Commission in 2000, the Government had entered into a 30-year agreement with InterOil in 1997, which allowed the company to have monopoly on the supply of refined petroleum products in Papua New Guinea.

But, Mr. Abe said although the recent acquisition of Shell by InterOil reinforced this monopoly in the wholesale market for distribution of refined petroleum product, the prices of refined petroleum products were controlled and monitored by the Independent Consumer and Competition Commission under the Price Regulation Act.

"This means that a wholesaler like InterOil or any other retailer cannot charge any prices other than prices within the set margins approved by the Independent Consumer and Competition Commission.

"It is, therefore, facile to say that InterOil, being a monopoly, will burden consumers by charging monopoly prices under the IPP arrangement," Abe said. On the rice issue, he said Independent Consumer and Competition Commission regulated the prices of rice but not the number of existing and potential entrants into the rice market.

He said the entry and exist of players was left to the market forces of demand and supply and, to have a direct control over this, would to be impracticable and contrary to principles of competitiveness as advocated by National Research Institute.

Abe welcomed calls for more dialogue by National Research Institute to ensure a better understanding of the operations and functions of Independent Consumer and Competition Commission.

April 27, 2006

The National: www.thenational.com.pg/

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