Canada Exposes Oil Companies' Triple Theft

A newly-published Canadian government report charges the major multinational oil companies in Canada with "enormous" overcharges - $C12.1 billion ($U.S.10 billion) due to monopolistic practices from 1958 to 1973.

The 1750-page report, entitled "The State of Competition m the Canadian Petroleum lndustry," analyzes the practices of Imperial Oil Limited (70 percent owned by Exxon), Shell Canada Limited, Gulf Canada Limited, and Texaco Canada Limited. It concludes, on the basis of internal company documents, public hearings into the oil industry, and other sources, that these four companies engaged in "predatory practices" to eliminate competition and extract higher prices from consumers.

Authored by Robert Bertrand, director of investigation and research in the Ministry for Consumer and Corporate Affairs, the report looks into the three aspects of the industry: producing, refining, and marketing. In each one, it alleges vast overcharges on the part of Imperial, Shell, Gulf, and Texaco.

On the producing end, the report claims that the major oil companies charged "higher transfer prices for their imports of crude oil than those prevailing in the world market. In addition, through a collusive arrangement, the majors restricted competition, the report claims. "In production, under the leadership of Imperial, the majors fixed crude prices and agreed to an allocation system of crude types that would have permitted the disciplining of any refiner-marketer who might otherwise have competed more aggressively."

As for refining, Imperial, Gulf, Shell and Texaco directed their policies "towards the restraint of competition both from other refiners and potential entrants." the report alleges. The majors succeeded, according to the report, because "in the absence of access by independents to foreign product," the integrated firms could control "both the volume of product supplied to and the price paid for product by non-integrated independent resellers."

Oligopolistic practices in the marketing sector "did the most damage to the public interest," the report contends, alleging that the majors combined to squeeze out any independent company that might be offering competitive prices. "Parallel exclusionary policies were followed for more than 15 years by the major integrated companies in the distribution of gasoline... When non-integrated firms offered price competition, the majors adopted similar exclusionary practices aimed at disciplining these independent marketers and restraining or eliminating competition from this source."

As a result of this collusive behavior in every process of the industry, "the additional costs to Canadians averaged almost $C15,000 ($U.S.12,500) per family" in the 1980 dollar terms, the report concludes.

Not surprisingly, the report has created an uproar in the oil industry, with each of the majors vigorously denying the charges. J.A. Armstrong, chairman of the board and chief executive officer of Imperial Oil, held a press conference two days after the report was released, to respond. "We deny these allegations of law-breaking or of unethical business practices," he said, adding, "We see no evidence of a lack of competition in the marketplace." In mid-March, Imperial took out full-page ads in major Canadian newspapers denouncing the report as "nonsense."

The investigation's findings have stirred outrage in Canada, with many people, including some members of Parliament, calling for swift action against the companies. But the government has decided not to prosecute; instead, it will hold public hearings before the Restrictive Trade Practices Commission, a government body with no enforcement power. "The problem is our anti-trust legislation is so toothless," explains Patricia Lorty, spokesperson at the Canadian Embassy in Washington. "The government's feeling was that it would take too long to prosecute," she added. "We anticipated a 10-year-period before the courts.

Estimate of Excess Cost to Canadians of Petroleum Industry Performance From 1958-1973 Simple total in 1980 dollars Present values in 1980 dollars Inefficient gasoline distribution system 5.2 34.3 Import overcharge for crude 3.2 28.2 Import overcharge for product 0.6 4.1 Excess cost of domestic crude in Ontario 3.1 22.6 TOTAL 12.1 89.2 $C1 = $U.S. 0.84 "Present value" costs take into consideration both the inflation rate and "opportunity costs," or the value of the money if it were invested profitably. "Excess cost of domestic crude in Ontario" refers to the fact that Canadians paid higher than prevailing world prices for oil produced domestically. Ontario, the province that consumes the most oil in Canada, was the only one for which such costs were quantified.