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Amid the feelgood talk about cleaner, more efficient fuels during the mid-January Abu Dhabi Sustainability Week, the presence of criminality and dirty money in energy industries worldwide was highlighted by the launch of a report from US think tank the Atlantic Council. In Downstream Oil Theft: Global Modalities, Trends, and Remedies, consultant Ian Ralby argues that, despite its undoubted impact, “the global scourge of illicit downstream hydrocarbons activity remains relatively invisible” – and much more is needed to tackle this particular oil curse.

Ralby has chosen ten case studies – Ghana, Morocco, Mozambique, Nigeria and Uganda, along with Azerbaijan, Mexico, Thailand, Turkey and the European Union – to show the market impact of criminality. It can be very profitable: at peak prices, tapping a Mexican pipeline of refined oil for only seven minutes could earn a cartel $90,000. It can be very costly even for the most sophisticated of exchequers: in 2012 alone, hydrocarbons fraud cost the EU €4bn ($4.3bn) in lost revenues. For weaker economies, the consequences are devastating: the estimated 30% of Nigerian hydrocarbons products smuggled into neighbouring states creates “an unsustainable dynamic given the increasing financial challenges facing that country”.

Among the case studies, Ghana’s Saltpond field and Tema refinery are shown to have been used as a trans-shipment hub for transferring stolen oil into the legitimate market. Mozambique is suffering from a “presource curse”, as local elites rob the state, creating “the pre-emptive economic devastation that can occur before hydrocarbons wealth even meets fruition”. Subsidised Algerian fuel smuggled across the formally closed border into Morocco has damaged both economies.

There are remedies for hydrocarbons corruption. Uganda’s fuel marking and vehicle-tracking programme reduced the amount of adulterated fuel from 29% to as little as 1% in its first year. Once Ghana’s Petroleum Product Marking Scheme was rolled out, the number of service stations found to be significantly diluting their fuel dropped from 34% to 7% within six months. “Some mitigation efforts – most notably fuel marking and vehicle tracking – have proved extremely useful in efforts to stem illicit activity and regain lost tax revenue,” the report says. Other measures, including closing borders, “have had little, if any, effect”.

But however well-conceived the reform programme, governance shortfalls can undermine progress. The report also claimed that while Uganda’s adulterated fuel programme was yielding results, “the regulators who test the state’s fuel marking programme routinely steal 22ltrs per truckload, amounting to 1.2m ltrs/yr at one border crossing alone”.
Such examples lead Ralby to observe: “Combating this pervasive criminal activity is made only more difficult by the reality that many of those in a position to curb hydrocarbons crime are the ones benefiting from it.” Ralby notes that “security forces, regulatory authorities, company insiders, terminal workers, and officials at every level are all potential participants in illicit hydrocarbons schemes that rob governments of revenue and enrich the individuals involved”. 
Unsurprisingly, tackling market distortions is critical to stopping politicians, cartels and their cronies robbing consumers and exchequers. Ralby says that “the most common determinant of oil theft is a significant price discrepancy between one state and its neighbour” – the case for Algeria and Morocco, and Nigeria – while other factors in neighbouring states, such as instability, currency imbalances and lack of border controls, “also impact the extent to which a state experiences downstream illicit activity”.

Ralby concludes that “while creative countermeasures on the ground will be helpful, they should be paired with equally creative countermeasures at the strategic, legal, regulatory, policy, and even international levels”. Lawsuits in jurisdictions far away from where the fuel is stolen “may do more to stop that theft than any amount of technology or manpower surrounding the fuel itself”. Law enforcers should take note.