Road to fuel crisis
View(s):
Fuel tanks at Hambantota. There is a strong case to open out the import and distribution of fuel in Sri Lanka.
In 1964, the US government passed the so-called “Hickenlooper Amendment” to the Foreign Assistance Act of 1962; it was named by its sponsor, Senator Bourke Hickenlooper. The Amendment was aimed at protecting American investment abroad, by empowering the US government to cutoff US aid to any country which nationalises or takes over American businesses without just compensation. By enacting the Hickenlooper Amendment, the US government was primarily looking at it’s neighbouring Latin American countries such as Cuba.
After the First World War and, of course in the backdrop of the so-called Cold War, the US development assistance had already commenced during US President Harry Truman’s time. Apart from that, the United States Agency for International Development (USAID) was also already established in the early 1960s during President John F. Kennedy’s time. It was such US assistance that was due to be suspended by the Hickenlooper Amendment.
Nationalisation of oil trade
Why I wanted to quote the above historical facts from the US was because the Hickenlooper Amendment was implemented against “Ceylon” for the first time in the same year it was passed, and perhaps, for the last time too. The US government suspended economic and technical assistance to Ceylon (named Sri Lanka, after 1972); why?
The Sri Lankan government nationalised (without compensation) 83 fuel stations belonged to two US oil companies; there were other non-US oil companies too so that the fuel supply in Sri Lanka until the early 1960s was under a competitive market mechanism; there were many companies in the oil trade including three multinational giants – Shell, Esso and Caltex.
As Professor of Law and a member of the New York Bar, Richard B. Lillich quoted in his paper titled, “The Protection of Foreign Investment and the Hickenlooper Amendment” in The University of Pennsylvania Law Review (Vol. 112, No. 
in 1964″, the then Sri Lankan Prime Minister Sirimavo Bandaranaike has accused the US government of trying to dictate terms; she has reportedly said that “Ceylon is not prepared to dance to the tune of capitalist countries to obtain aid”, comments which were published in the London Observer newspaper.
Capitalist food for
socialist march
Sri Lanka’s nationalisation programme was initiated in the late 1950s, while the first phase of this initiative lasted till 1965. It came to a halt during 1965-70 under the then UNP government led by the Prime Minister Dudley Senanayake. The second phase of the nationalisation programme was renewed and accelerated during 1970-1977 under the United Front government of the SLFP, LSSP and CP.
A less-debated national issue in the nationalisation programme from the beginning was “the hidden motive of attacking the political opponents”. Nevertheless, the programme was justified with Sri Lanka’s political bias towards a “socialist economy” under which private property and business was seen as anti-socialist elements.
Today, some of our intellectuals and analysists lament that unlike India or other countries in the region, Sri Lanka doesn’t have a developed “capitalist class”. Why we don’t have the “capitalist class” is, because we have gradually destroyed it from the beginning.
Whatever the US reaction to the country’s nationalisation of American oil companies, Sri Lanka continued to receive food aid from the US under the US Public Law 480 (PL 480) programme: Therefore it looked like the country was marching towards a socialist economy in the 1960s and the 1970s by feeding the population with capitalist food aid.
Mid-day meal and milk that the school children received during this period was instrumental in combating hunger and malnutrition in the majority of the poor population of Sri Lanka. As the US was producing such a massive agricultural surplus every year, including wheat and milk harvest, as reported, it was able to feed, under the PL 480, three billion people in 150 poor nations; this included Sri Lanka too.
Too small to survive
The decade of the 1960s was marked by interesting economic and political movements in Asia. In 1965, Singapore received its independence from Malaysia being, probably, the only country in the world to receive a “forceful independence” against the will of its people. It’s because the country was literally kicked out of the Federation of Malaya; but Singapore accepted the secession.
A feeble tiny nation with no resources of its own, Singapore was seen at the time as “too small to survive”. Today, it is the richest country in Asia so that some of the commentators say that it was “small enough to manage well”.
After the separation from the Federation of Malaya (Malaysia), the British military bases located in Singapore started packing up to leave the country. The Prime Minister Lee Kwan Yue, as he reported in his memoirs, pleaded with the British government to change the decision. On the contrary, Sri Lanka had already done the opposite; the government acquired the Katunayake air base and Trincomalee naval base held by the British forces in 1957.
Lee Kwan Yue’s foresight was that, as he explained, the departure of the British military bases would be a bad precedence for the remaining few British businesses too to leave Singapore. To his disappointment, they all left completing the withdrawal process by 1971, putting the resource-scarce Singapore in a further crisis. It was, then that Lee Kwan Yue turned to US investments, to fill the gap.
As the country was open for foreign investment, global oil companies including those which were chased away from Sri Lanka, started investing in the oil industry in Singapore. Today there are 20 large Oil and Gas companies operating in Singapore along with numerous other oil-related companies as well as the Singapore Petroleum Corporation, while the major ones are Shell, Halliburton, Chevron, TechnipFMC and Total. Although Singapore does not have a drop of oil, in terms of oil exploration, production and trade it’s among the top-100 oil producers, contributing 5 per cent to its GDP.
Incomplete experiments
Sri Lanka’s experiments with nationalisation and building inefficient state-monopolies which did not produce admirable economic and business performance, came to a halt after the 1977 market-oriented policy reforms. The privatisation of nationalised businesses which began in the late 1980s lasted about 15 years.
While nationalisation was used for attacking the political opponents, privatisation was used for favouring political supporters. Although there were successful privatisation cases, many of the privatisation deals were corrupted so that the privatisation programme too earned a bad reputation. Because of this bad reputation, even today “privatisation” is a difficult choice for the Sri Lankan government.
Fuel supply, which was experimented as a state “monopoly” for 40 years and as a “duopoly” of the two enterprises for another 20 years has now come to a virtual halt. Being an “imported” commodity, both entities were using the same local sources for purchasing foreign exchange, the duopoly model has failed in the midst of the country’s foreign exchange crisis.
Time for the “pound of flesh”
The kilometers-long fuel queues in the country and the daily news about the related shattering issues are a clear visible indication of the failure of the fuel duopoly. Although there are talks about a possible breakthrough in the so-called duopoly system, with the opening up of the fuel supply to many players, the outcome is yet to be seen.
Even at the time of ending the state monopoly in 2002, why China’s Sinopec was not given a market share still remains a question, which has been forgotten to many. Today, when Sri Lanka is brought down to such a low state of its economic survival, there is no bargaining power.
In this context, it is doubtful whether there would emerge a competitive market for fuel supply, until it happens. It is also the time for many to grab a “pound of flesh” from the nation.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and
follow on Twitter @SirimalAshoka).
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