The government should take advantage of the respite in oil prices and establish a transparent, predictable and durable mechanism for setting petroleum product prices.  That they have not done so yet may stem from politics but also perhaps because of a fundamental ambivalence towards competition.  Certainly the twists and turns in pricing policy over the past years has suggested that the government is not unequivocally  supportive of private sector involvement. Their policies have  effectively emasculated competition.  The purpose of this article is to urge the government to clear this ambivalence. This is not because I am an advocate of competition (which I am) but because against the backdrop of the global financial crisis and the still unhealthily strong linkage between economic growth, energy demand and environment impact, I do not believe we can afford continuing confusion.

The accepted wisdom is that competition is desirable and that  market forces foster  innovation and efficiency. I subscribe to this view but I also accept that competitive markets do not inevitably lead to efficient markets.  Competition is vulnerable to being undermined through collusion and cartelisation.  Indeed even Adam Smith, the apostle of free markets acknowledged that “people of the same trade seldom meet together even for merriment or diversion but the conversation ends in a conspiracy against the public or in some contrivance to raise prices”. 

The central issue is not therefore whether there should be competition or not — it is the substantive intent of policy.  What does the government really want?  Does it want  private sector involvement and if so, across the entire value chain from exploration and production to refining and marketing, only in selective segments, or does it wish to return to the command and control dirigsme of earlier years?  The government must bridge the gap between rhetoric and reality and bring competition policy out of the netherworld of ‘de jure’ free markets and ‘de facto’ administered control.

... contd.