Piped gas vs. gas cylinders
Last week, smack in the middle of a bone-chilling storm, gas cylinders seemed to present a dilemma to the Jordan Petroleum Refinery Co. (JPRC) and the Association of Gas Distributors (AGD), as 719 cylinders, out of 2.8 million, were determined defective by the JPRC. Who is to pay for replacing the defective cylinders?
Close scrutiny of the facts and the relationship between the parties involved would point to a tragedy of errors caused by a monopoly and a defenseless consumer.
JPRC receives JD25 for each empty cylinder, which is paid ultimately by the consumer as a deposit for the cylinder. The money is received as payment for the cylinder by the JPRC, which later charges the distributor for filling it.
JPRC filled 22 million cylinders last year. There are 779 distributors, charging a service fee of JD0.43 per cylinder or 26 percent (fixed by the Council of Ministers) of the price to the consumer. In the debate that ensued, JPRC hinted that it might license an additional 2,025 distributors, whose applications for distributorship are pending approval.
Last week, JPRC offered to pay for the cost of replacing 114 cylinders, while the remaining 605 were to be replaced by the distributors; the reason being that the distributors mishandle the cylinders.
But, 719 defective cylinders out of 2.8 million that get refilled on average ten times a year is an unbelievable record of proper handling; only 2.5 per 10,000 are damaged.
The low figure, given the charge of improper handling, points to the fact that an independent monitoring system should be set up. The monopolist JPRC cannot behave optimally as both a regulator and operator.
Of course the distributors refused to pay the cost, denying JPRC allegations of mishandling. Consequently, each party tried to pin the blame, and thus the liability, for the deteriorating state and safety of these contraptions on the other.
To further exacerbate the situation, given the somewhat fixed demand for canister gas and given the monopoly status of JPRC, distributors are faced with an implied, yet dangerous, threat by the monopolist that the revenues (approximately JD10 million per year) would have to be shared by over 3,000 distributors instead of the 779 current distributors.
Moreover, the distributors have incomplete information, in that only JPRC can determine if the cylinder is defective or not, since JPRC has the equipment. The real loser in the case of a defective cylinder is the consumer whose house or business may be burnt as a consequence.
Also, the consumer pays the full price, irrespective of the fact that the cylinder is defective or not, and has the least amount of information and therefore is the most susceptible in the case of fraudulent practices.
In addition, the JPRC, as a monopolist, does not have to worry that its competitor(s) would come up with newer or safer cylinders. There are none. This is typical monopolistic behavior. (The discovery of the defective cylinders was made only after the Ministry of Energy urged the JPRC to test the cylinders, the latter being a monopolist with no incentive to test.)
And as a signal of monopolistic pricing, there are many smuggled cylinders, which could mean that either the monopoly is overpricing or producing inefficiently or both.
The distributors, on the other hand, have no incentive, contractual or otherwise, to handle the cylinders carefully.
In order to maximize profits, and because of the fixed fee received per cylinder, the distributors attempt to perform the sale transaction with minimum cost, which may include reckless handling.
So what is the solution? Had there been a competitor to the JPRC, the solution would have presented itself: there would have been competition in quality and price, or both.
Since there is none, the JPRC has to establish a rule to depreciate those cylinders, such as set a number of times a cylinder may be refilled before it is retired.
Special markings or a magnetic bar chart would be placed on a cylinder and used to read the number of times it has been refilled.
If the number of refills exceeds, say, 100 times, it is scrapped or sent to a JPRC owned factory for reconditioning.
On the other hand, JPRC should draft a general contractual handling agreement that would apply to all distributors, who are basically resellers of its product gas filled cylinders.
The agreement would require that distributors have certain equipment and follow specific safety procedures to properly handle the cylinders.
Observed repeat malpractice or failure to fulfill the conditions of the agreement could lead to dissolving the distributorship agreement, possibly through a point system. It is imperative that penalties be not financial, so that the JPRC does not view them as an added source of revenue.
On the other hand, cylinders damaged beyond the normal expected wear and tear should not be accepted from any distributor who, in turn, should refuse to accept them from consumers.
However, the damage conditions must be specified by JPRC in a clear and transparent manner. In other words, both the original seller and the reseller (distributor) must act in a manner that guarantees the safety of the consumer.
While the cost of ensuring such safety has to be borne by the first seller, JPRC ,because it is the only party that can observe the safety of the product completely, certain contractual responsibilities have to be placed upon the reseller.
In all cases, the JPRC should open the door for distributorship to any person or entity that qualifies, provided that it drafts the proper contracts to ensure consumer safety. Competition among distributors would help ensure some form of optimal behavior in the distribution channel.
The Consumer Protection Society should interfere for the consumer; the monopolist cannot be expected to monitor itself acting as regulator and operator.
Somebody, other than the JPRC, should recheck all the cylinders. Furthermore, it is about time that Jordan started delivering gas like most of the rest of the Arab world to homes and businesses via pipes. Think how many lives such a move will save!
By Yusuf Mansur
( Jordan Times )
© 2001 Mena Report (www.menareport.com)