The Editor, Sir:

The recent news that Petrojam had lost money was a shocker to me. The reasons offered were even more astounding than the news itself. Incredible as the story may be it cannot be dismissed as an attempt to pull off an April fool's prank.

How can a monopoly lose money selling a product that is in demand and the price of which it adjusts every single week? Yes, it can! Petrojam has done it. Simple, their weekly adjustments to selling prices had nothing to do with either the cost at which they acquired the oil or their cost of processing it. They were copying the Gulf reference prices. Ironically, our oil is sourced and priced by treaty. Although there is a linkage to the spot prices, it is not our price.

I have always argued that it is improper to have a selling price that is not a derivative of the buying price of the commodity concerned. Every street hustler, higgler, shopkeeper, merchant recognises the principle of cost price plus profit is equal to selling price. Hence, when it is fairly applied, a drop in price of a commodity will become effective when the lower-priced goods come in to stock. When there is a price increase, the converse should also apply. However, in practice, increases usually take immediate effect, resulting in a windfall profit for the stockholder.

In Petrojam's case, since purchases are on a monthly basis, it stands to reason that there could be a time lag in price adjustments to facilitate the exhaustion of the lower-priced inventory. The significant change that must be done is that the copying of Gulf reference prices must cease immediately. A proper pricing policy must be established based upon the purchasing cost.

When prices were going up we were often told that our dilemma was compounded by the sliding Jamaican dollar and increasing oil price. Why then, should falling oil price result in a loss to the monopoly refinery?

Am I wrong in my understanding that the use of the Gulf reference price is not a treaty obligation, but is a commitment to a domestic policy of convenience? If the foregoing is correct, then how could a 'responsible management' continue the use of a flawed 'copy' pricing policy that was resulting in billions of dollars of losses without doing the obvious or resorting to actual pricing?

Dominant position

Unable to fathom what seems indistinguishable from lunacy, someone said there may be method to the madness. The announced losses by Petrojam may be the foundation for a loud shout to divest the refinery. After all, the Government should not be in the oil refinery business, and especially when they are losing billions of dollars in doing so.

It should not be long before the refinery is divested for a song to some member of the private sector who knows how to price a commodity, especially when they are in a monopoly or dominant position. Bingo! in private ownership, there is a miracle turnaround with a healthy profit for the investor. Alas! The loss would have served its purpose.

I may be very wrong on many or everything said above, but this is an opportunity for those in control to explain 'how come'?

I am, etc.,

LUCIUS C. WHITE

Kingston