DOWNSTREAM OIL THEFT

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Downstream Oil Theft: Global Modalities, Trends, and Remedies smuggling is most concentrated in the Algerian province of Tlemcen and the Moroccan province of Berkane and prefecture of Oujda-Angad, whence contraband can be quickly transported to major Moroccan cities for distribution. Petrol is sourced from Algerian fueling stations in regional cities and towns, and then taken to storage depots not far from the border. At night, the fuel is transferred to jerry cans for transport across the border via cars, trucks, motorcycles, or—an increasingly popular method— donkeys and mules, one of the latter being able to carry up to thirty full jerry cans. The animals also offer the advantages of being able to travel across any terrain, even unaccompanied, and being far more discreet than motor vehicles. Once across the border, the illicit fuel is sold along the roads or transported to urban markets. It is also suggested that border officials are often bribed—so much so that in 2013, as part of its border crackdown, the Algerian government replaced large numbers of border personnel. Profits funnel upward to the heads of smuggling rings, and are reportedly laundered through the real estate market—a practice that explains the building boom in border areas and has allegedly led to syndicate leaders accruing significant political influence. 224 This illicit industry may mean that smuggled Algerian fuel will continue to skew the figures for Moroccan energy consumption and limit the amount it actually needs to import—a net gain for the Moroccan government under the current circumstances—despite the loss in tax revenues. Such a dynamic might also further explain why the Moroccan energy sector remains so difficult to understand. Mitigation Recent changes in circumstances, especially border crackdowns, have altered the criminal landscape, but to what extent remains unclear. Any involvement the SAMIR refinery had, either in refining stolen Nigerian crude laundered through Ghana or in smuggling fuel 224 Querine Hanlon and Matthew M. Herbert, Border Security Challenges in the Grand Maghreb, Peaceworks Series (Washington, DC: United States Institute of Peace, 2015), 10-12. out of the country, has been stopped, at least as long as the facility remains shut down. Its potential reopening, however, also reopens the possibility for participation in illegal supply chains. Even the presence of a shipment of crude, waiting just off Morocco’s coast for nearly a year, however, was not sufficient impetus for the government to allow the refinery to reopen without first resolving some of its debts. 225 Over the past two years, Morocco and Algeria have taken concrete steps to curb cross-border fuel smuggling. In 2015, Morocco erected a 100 km fence at a high-traffic area along its border with Algeria. Not to be outdone, Algeria proceeded to dig a 700 km trench along the border, and in August 2016 began construction of a 3.5 meter (m) high fence blocking a key smuggling route to and from the Moroccan cities of Ahfir and Beni Drar. The stated aim of the new fence is to mitigate the smuggling of fuel from Algeria into Morocco and drugs from Morocco into Algeria. 226 It remains to be seen how effective these measures are, given that, as one Moroccan security official remarked, closed borders “are only closed for legal things.” 227 Conclusion It is difficult to get authoritative insights into Moroccan energy dynamics. The lack of clarity may have made it difficult for the state to take decisive action. The participation in oil laundering and a broader illegal supply chain is a black mark on the embattled SAMIR refinery, but the smuggling operations across the Algerian border may be continuing to offset the state’s needs to import fuel. If Morocco begins extracting meaningful amounts of oil and if the SAMIR refinery comes back online, there would be significant impacts worthy of review. 225 “Moroccan Refiner SAMIR Fails to Reach Oil Cargo Deal, Restart in Doubt,” Reuters, June 28, 2016, http://www.reuters. com/article/morocco-refinery-samir-idUSL8N19K5F4. 226 “Algeria Erects a Fence Along Border with Morocco,” Morocco World News, August 19, 2016, http://www.moroccoworldnews. com/2016/08/194702/algeria-erects-fence-along-bordermorocco/. 227 Hanlon and Herbert, 7. ATLANTIC COUNCIL 39
Downstream Oil Theft: Global Modalities, Trends, and Remedies UGANDA The Hydrocarbons Context Uganda is a new arrival among hydrocarbons producers. In 2006, extensive oil reserves were discovered, which have since proved to amount to at least 3.5 billion barrels, though the Ugandan government’s own estimates have placed reserves at 6.5 billion barrels. 228 Over half these reserves are considered recoverable with existing technology, and only 30 percent of the country has been prospected. It is anticipated that Uganda will be able to export some 140,000 bpd out of a total production of 200,000 bpd. 229 The chief logistical difficulty is that Uganda is a landlocked state, and oil must be transported 1,300 km to reach the coast. 230 Infrastructure therefore remains an issue, but the Ugandan government and outside investors have begun, however slowly, to build toward production, which is expected to begin in 2017. Three major firms—the UK’s Tullow, France’s Total, and China National Offshore Oil Corporation—have undertaken the bulk of development; in the most recent round of bidding, three Nigerian companies and one Australian firm were also granted licenses. 231 In a significant sign of progress toward realizing oil revenue, on August 30, 2016, Uganda issued eight twenty-five-year production licenses, five to Tullow and three to Total. 232 Another notable project is the country’s one planned refinery, intended to process up to 60,000 bpd; the approximately $4 billion construction contract first went to the Russian firm RT Global Resources, but in summer 2016, that deal fell apart, leaving the project in the hands of the second-ranked bidder, SK Engineering and Construction of South Korea. 233 228 “Uganda,” United States Energy Information Administration, http://www.eia.gov/beta/international/analysis.cfm?iso=UGA. 229 Silvia Antonioli, “Bulk of Uganda Commercial Oil Production to Start in 2017-Minister,” Reuters, May 9, 2014, http://www. reuters.com/article/uganda-oil-idUSL6N0NV4AW20140509. 230 “Oil and Gas in Africa: Africa’s Reserves, Potential and Prospects,” KPMG, https://www.kpmg.com/Africa/en/IssuesAndInsights/ Articles-Publications/Documents/Oil percent20and percent20Gas percent20in percent20Africa.pdf, 7. 231 “Three Nigerian Companies, One Australian Selected as Competent for Uganda Oil Exploration Licensing Round,” Uganda Oil, August 1, 2016, http://ugandaoil.co/2016/08/threenigerian-companies-one-australian-selected-as-competent-foruganda-oil-exploration-licensing-round/. 232 Elias Biryabarema, “Uganda Gives Tullow Oil, Total Production Licenses,” Reuters, August 30, 2016, http://www.reuters.com/ article/us-uganda-oil-idUSKCN115104. 233 Fred Ojambo, “Uganda Offers $4 Billion Refinery Project to Korea-Led Group,” Downstream Today, July 1, 2016, http://www. downstreamtoday.com/news/article.aspx?a_id=52652. Transporting the oil to the coast has taken the form of a pipeline to the Tanzanian port of Tanga. The Ugandan government had at first indicated Kenya’s Lamu as the port of choice, but in 2015, for reasons including port infrastructure, security, and relative costs in both time and money, Tanga was chosen instead. Exporting is slated to begin in 2020. 234 History of Illicit Hydrocarbons Activity Uganda has a mixed history with illicit hydrocarbons activity. According to industry and government sources, in the early 1990s, cross-border smuggling flourished as Ugandan taxes on fuel created a significant disparity between fuel costs per liter in neighboring states. While relatively localized issues may abound, they must also be viewed in the context of larger corruption. According to Transparency International, Uganda ranks as one of the most corrupt states in Africa, and in its 2015-2016 survey the NGO found that some 69 percent of Ugandans believe that corruption has only worsened in recent years. 235 In 2013, then United States Ambassador to Uganda Scott DeLisi said in a speech in Kampala that corruption had made American firms reluctant to do business in Uganda. 236 Further, the government’s oil dealings remain largely opaque: as one Ugandan report has pointed out, specifics about the allocation of revenues from oil development have grown thin since it was revealed that the funds had been used to purchase fighter jets. 237 The jets, purchased from Russia, were paid for partly with tax revenues from Tullow. 238 Also, despite repeated announcements of its commitment to do so, Uganda has yet to sign on to the Extractive Industries Transparency Initiative. Yet, Uganda has also taken 234 Adjoa Anyimadu, “Tanzania Pipeline Deal Reflects Uganda’s Practical and Strategic Concerns,” Chatham House, May 4, 2016, https://www.chathamhouse.org/expert/comment/ tanzania-pipeline-deal-reflects-uganda-s-practical-andstrategic-concerns. 235 “2015 Transparency International Africa Report,” Transparency International, 11. 236 “Fears of High Levels of Corruption Holding Back US Investment in Uganda,” The East African, http://www. theeastafrican.co.ke/business/Fears-of-high-levels-ofcorruption-holding-back-US-investment/2560-1709272-viewprintVersion-avwwnwz/index.html. 237 Isaac Imaka and Frederic Musisi, “Following the Oil Money: How Much Has It Done?” Daily Monitor, December 3, 2013. 238 Nicholas Bariyo, “Uganda Buys Fighter Jets,” Wall Street Journal, April 7, 2011, http://www.wsj.com/articles/SB10001424 052748704013604576248094099823846. 40 ATLANTIC COUNCIL
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PART III Stakeholders and Recommend
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Atlantic Council Board of Directors
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DOWNSTREAM OIL THEFT

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