12 August 2017, Harare — Zimbabwe could be losing at least $240 million annually to fuel fraud while globally at least $40 billion is lost to smuggling activities associated with subsidies, tax and price differentials worldwide.
Smuggled and stolen fuel deprives governments of tax revenue. According to a leading global authentication and information services company, Authentix Inc which assists customers in combating illicit fuel trade and managing the integrity of their global supply chains worldwide, Zimbabwe, among other African nations, has been facing national fuel supply chain problems such as smuggling, adulteration and dilution of fuels.
Other challenges also include outright theft, all of which deprive Government of much needed tax revenue. “Projecting that around 40 percent of your fuel price(s) are constituted by duty and taxes, we estimate that you could be losing $240 million a year,” said Authentix managing director for Southern and East Africa Mr Johann van Niekerk.
Zimbabwe spends about $1,3 billion in fuel imports annually. The challenges could be minimised by fuel marking, according to Mr van Niekerk. Fuel marking is a programme instituted to combat smuggling, dilution and adulteration. In the process, fuel marketers deploy marking programs to prevent grade switching and to ensure proper levels of additive were present.
Proprietary markers can include those that can indicate a pass/fail or quantitative result in the field with test kits or portable analysers, and forensic markers that are detected via laboratory-based analysis, according to Authentic.
Earlier this year, the Zimbabwe Energy Regulatory Authority said regulations to guide the introduction of mandatory fuel marking to curtail illicit fuel trade were complete.
Mr van Niekerk said that his company had held wide-ranging meetings with ZERA, “but we still don’t know at what stage they are in terms of fuel marking”.
Mr van Niekerk said Zimbabwe economic scene — like in most other countries across the globe — offered a lot of incentives for fuel transporters and dealers to sell fuel outside the normal channels.
“With growth comes the need for more hydrocarbon fuels and if there is the need for more hydro-carbon fuels governments and consumers have got one thing in mind, that is they want it as cheap as possible, so that’s the first driver.
“The other thing is that we were once at $120 for a barrel of fuel, it’s now selling around $50 so there’s an overproduction of fuel on the market,” he said.
The third issue he said was that there are huge pricing disparities between countries, “especially in the region because some countries like Zimbabwe are landlocked”.
How fuel fraud happens
In South Africa, virtual or phantom exports happen a lot. When you book a product out for export from a refinery or from a depot you can export it and then you can claim back from the revenue authorities.
“So what people do is to fill up the tanker with water, get the paperwork done, goes through the border and says its fuel. We claim back and dump the water in the closest reservoir or even sell the water. This is called a phantom export.
In Zimbabwe, you hold the product in bond, it’s declared as going for transit but it’s not going and is dumped here. This is called a phantom transit. When the product is bound and in transit no taxes, no duties and no VAT,” said van Niekerk.
The government has already been working to curb fuel fraud. Zera’s engagements with the Zimbabwe Revenue Authority on the issue of fuel fraud had resulted in the revenue collector placing trackers on all fuel tanks transiting through the country.
The energy regulator has since put out an expression of interest with regards to the implementation of a fuel marking system.
Adulteration of fuel is also a challenge around the world. Fuel marking protects formal legitimate business which will result in an increase in fuel excise tax revenues, reduces domestic subsidy abuse.
It also provides governments with full visibility of actual flows and volumes within national fuel supply chain
Authentix has marked over 1,5 trillion litres of fuel for both major oil marketing companies and state-owned oil companies and recovered billions in lost excise tax revenue for governments around the world.