At our recent hearings on gasoline marketing, there seemed me that you may be interested in the attached article from the *** Incidentally, we have recently become aware of a retail marketing divorcement law that was enacted recently in Australia. Our staff is seeking more specific information about their new law and a background meno will be distributed to all members of the Subcommittee as soon as the information is available. 10 THE WALL STREET JOURNAL, Friday, April 3, 1981 Antitrust Allegations Anger Oil Concerns In Canada and Stir Government Reaction By JOHN URQUHART Staff Reporter of THE WALL STREET JOURNAL OTTAWA-A Canadian report on alleged of antitrust practices has outraged petrokum companies and prompted new scrutiny of the industry by tax collectors. The 7-year investigation also has shown economics Prof. John Baldwin, a coauthor of the study, something he hadn't known about the low gasoline prices at the Beaver filling station near his home. Fipples continue to spread from the March 4 report, which alleged that major oil companies milked Canadians for billions of dollars in overcharges. The report suggested industry changes that could include the breakup of Canada's largest oil company. Imperial Oil Ltd., 70-controlled by Exxon Corp. Public hearings by Canada's Restrictive Trade Practices Commission, a quasijudi. cial agency, may start this fali Meanwhile. the report provided a rare glimpse of the oil industry's inner workings, and investigators contend that company documents depict a range of "predatory practices. The report says that Beaver filling sta tions, such as the one patronized by Queens University's Mr. Baldwin, are part of Shell Canada Ltd's retail operations. Investiga tors alleged that some major companies turn to low-profile brands to wage price bat. ties with independents, in effect shielding their main retail brands from price competi Unlike in the US, where the Federal Trade Commission has to fish for documents with subpoenas, Canadian investigators used their visitation power to descend on the vil companies and cart off boxes of docu ments in 1973, 1974 and 1978. The report has infuriated the oil industry. "Rip-off? Nonsense!" exclaimed Impenal's chairman. Jack Armstrong, in recent full page ads that appeared in Canadian daily newspapers. Shell Canada, a subsidiary of Royal Dutch Shell Group, said the report smears the industry through leaps of logic, twists of definition and debatable interpretations." In the retail gasoline market, Shell Can ada said, "we compete both by offering a range of services at different types of sta tions from full-service to gas bars and by meeting price challenges." Shell Canada also said its supplies were purchased at a fair price." J.C. Phillips, chairman of Gulf Canada Lid., a Gulf Ou Corp. unit, said in a statement to shareholders that he was "deeply offended by the tone and technique of the government's report. He added, "At no time have we conspired to fix prices, nor have we set out to rip off our customers." Excessively Cosy? the Belgian oil company Petrofina S.A., has Petrofina Canada Ltd., a subsidiary of challenged the powers of the investigators to enter its offices and examine its documents. Petrolina's documents weren't included in As the matter is currently before the courts, the report. However, Petrofina's name cropped up repeatedly in the documents of other onl companies. A Gulf Oil memo alleged that Petrofina's intracompany transactions in crude oil built up profits in a Nassau company that served as a tax shelter. A Petrofina spokesman declined comment on the Gulf memo, which was written by a Gulf official after a lunch with a Petry fina executive. ords of excessively cozy exchanges among The corporate files also contained recoil companies, the investigators alleged. "Imperial told me this week that they es umate their cost will be increased by 25 cents a barrel." said a British Petroleum Co. official in an internal memo on expected crude price changes. Exchanging such sensitive information" is characteristic of cooperating oligopolists," the investigators said. Their report also charged that the Cana dian government and its agencies were at times too chummy with the oil companies. "We have been confidentially requested to help the National Energy Board devise a discriminatory licensing system," one Impe rial document said. A continental energy policy for Canada and the U.S., which Imperial was advocat ing in the late 1960s, was described as fol lows in an Imperial document. What is it? Basically it is a scheme under the guise of protecting the citizens interests to increase the production and hence the profits of Ca nadian producers." Tax Action Possible The report also said that Canadian affili ates of major oil companies had to maintain high retail prices to meet the steep costs of crude from their foreign parents and to cover their high retail marketing costs. The crude oil pricing strategy was designed to avoid Canadian xes, the report asserted. A Sun Oil Co. document said the company was head as long as the Cana dian authorities recognize these high (crude oil prices fully as costs despite their basic unreality." The disclosures may bring action from Canadian tax officials. Oil industry praetices are currently being examined. Reve nue Minister William Rompkey said. Several oil companies maintained that if the Investigators had a strong case they would have gone to court rather than turning the matter over to a commission for a public hearing. The government, however, has indicated that it is prepared to support private litigation against the oil companies, arising from their alleged monopolistic practices. The Montreal Superior Court will open a hearing May 20, an application for a class action suit against the oil companies or be half of Quebec residents. Paul Unterberg, a lawyer who is prepar ing the suit, indicated that he would seek a price rollback as compensation for alleged overcharges by the oil companies since 1958 The federal government said it is ready to help prepare the suit. 79-549 0-81--20 APPENDIX F.-ITEMS SUBMITTED BY HON. LOUIS GOLDSTEIN EXHIBIT 1 From Business Week magazine, April 6, 1981 Editorials Oil invites distrust In spite of well-staffed, well-paid public relations Investments in mining may be a better bet than were The trouble is that diversification is soaking up capital that the oil industry will need in the future even if it has ample money for exploration now. The gradual switch from petroleum to synthetic fuels will demand enormous investments continuing into the 21st century. And that switch should be financed by private capital, not by government spending. Oil company executives may think of themselves as managers of money, free to invest in whatever looks good to them. But the public thinks of them as the producers of fuel, and it holds them responsible for the cost and availability of the products that run the nation's furnaces and automobiles. By saying one thing and doing another, the oil industry has seriously damaged the already low opinion of business held by the general public. I am enclosing a copy of an article which appeared in the Baltimore Sun of March 31, 1981, entitled "Taxing Big Oil's Profits", which I thought you would like to have for your information. This article certainly bears out the statement with reference to the oil companies using their excess profits to diversity out of coal into some other lines. with kindest personal regards and best wishes, I remain, LLG/geh File: 10 Enc. Most cordially yours, Louis L. Goldstein about the supply-side economics so dear to the Reagan administration and they suggest that taxes on the oil companies might be raised. The economic policies of the administration are based on the claim that money moved from the public to the private sector will be invested to improve output and productivity and thus reduce shortages, diminish inflation and promote full employment. As a test for that theory, the oil companies are first in line. Thanks to deregulation and the shortages of 1974 and 1979, the oil companies are flush. Texaco, Mobil and Standard of California hold over $3 billion apiece in cash or the equivalent. Standard of Ohio, Standard of Indiana, Gulf and Phillips have nearly $2 billion apiece. The special competence of the companies bears a close relation to the national interest. What the companies are supposed to do best is find, extract, transport, refine and sell oil and gas. The United States and its allies are so short of petrole Bottegune Rorybie 3/3/5! Taxing um that American foreign policy Furthermore, practically to the Alton Whitehouse, the chairman of Ohio Standard, testified to the Senate Finance Committee on July 12, 1979, that: "The surest investment our country can make in the short term... is to emphasize traditional oil and gas exploration. We will get the biggest bang for our buck on that program. J. Dennis Bonney, of Standard of California, when asked what the company would do with windfall profits, told the Senate Judiciary Committee on June 25, 1979, that "our preference, our strong preference, would be to reapply those profits to reinvestment in the oil and gas business." Jack Allen, a spokesman for the independent producers, testifying on deregulation, told a House subcommittee on Energy and Power on May 16, 1979, that "the increased revenue resulting from this program would have been recycled into exploration and drilling, as has occurred all during the history of the petroleum industry." Drilling, to be sure, is now at record levels, but the companies have money left over that they are not putting into oil and gas exploration. They are spending tidy sums just to buy off the present stockholders of companies that are in many cases good and efficient and don't need any help Nobody can blame the oil companies. They are making sound investments. But the fact is that making money available for investment to private companies doesn't always work to promote the public good. Sometimes there's a difference between national interest and corporate interest. The difference emerges when the oil companies' spend revenues, which the country thought would yield more energy, on mere financial deals. It is not only the private sector, moreover, which invests for the future. Money spent by government on defense and education and health and highways and housing is also an investment in the future. So is money spent by government on programs that avert civil strife. If the government is short of funds, if it has to pinch in areas that hurt the whole society badly, then it makes sense to look for additional revenues. One place from which the public sector can probably draw more money without doing great harm is the oil industry. |