DOWNSTREAM OIL THEFT

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Downstream Oil Theft: Global Modalities, Trends, and Remedies oversight of petroleum retail facilities, providing the government with a means of monitoring national standards compliance. 260 The following year, in November 2012, a company was contracted to supply molecular marking technology, while MEMD and UNBS oversee its use. Fuel is marked by UNBS at the customs entry points of Malaba (Tororo District, Eastern Region), Busia (Eastern Region), and Mutukula (Rakai District, Central Region). Fuel samples are taken from trucks and tested at mobile testing facilities. 261 The testing process is monitored with live video feed, and the chemical analysis takes roughly five minutes to indicate the presence, absence, or diluted state of the fuel marker. In other words, not only can the test show whether the fuel is marked legitimate or not, it can also indicate whether it has been adulterated. Tracking Shipments In 2013, the Uganda Revenue Authority also began tracking shipments coming into the country from Mombasa using electronic tracking equipment. TradeMark East Africa, a not-for-profit whose mission is to support trade aspects in the East African Community (of which Uganda is a member), worked with the URA to establish an Electronic Cargo Tracking System (ECTS). 262 Through a multi-million dollar program run by ECTS in conjunction with a contractor, tracking devices are affixed to goods-laden vehicles and information regarding the voyage and certain tampering with the cargo is recorded. 263 The program tracks tanker trucks partly through four mobile labs, all equipped with GPS tracking units. 264 The tracker, however, does not provide evidence of fuel adulteration at the molecular level, as the marking does, but tampering with the tracker indicates illicit smuggling and other illegal practices. As detailed below, this aspect of mitigating illicit hydrocarbons activity recently led to one of the most important law enforcement operations concerning fuel smuggling to date. 260 Office of the Auditor General, “Report of the Auditor General on the Financial Statements of Fuel Marking and Quality Monitoring Program (FMQMP) for the Year Ended 30th June 2015,” Kampala: Office of the Auditor General, 2015, http://www.oag.go.ug/wp-content/uploads/2016/03/ FUEL-MARKING-QUALITY-MONITORING-REPORT-OF-THE- AUDITOR-GENERAL-2015.pdf. 261 “Fuel Marking and Quality Monitoring Program,” Uganda National Bureau of Standards, August 23, 2012, http://www.unbs. go.ug/index.php/fuel-marking-and-quality-monitoring-program. 262 “Uganda Electronic Cargo Tracking System,” Trademark East Africa, https://www.trademarkea.com/projects/ugandaelectronic-cargo-tracking-system/. 263 “URA Launches an Electronic Cargo Tracking System,” BSmart Solutions, http://www.bsmart-solutions.com/news/cargo_final.pdf. 264 Khisa, , “Kerosene Tax Waiver Fuelling Adulteration.” Significant Improvement With the increase of fuel taxes in DRC helping to equalize fuel prices between the neighboring states, the use and monitoring of fuel markers, and a variety of governance initiatives aimed at countering corrupt practices, illicit hydrocarbons activity in Uganda has fallen considerably since 2009. High-level official and industry sources have indicated that at most 1 million of the 150 million liters of fuel consumed in Uganda each month is smuggled. The UNBS 2015 estimate that 5 percent of the fuel products on the market were adulterated has further declined: the stated figure for 2016 has fallen to 0.6 percent, partly due to a crackdown on fuel stations engaged in adulteration. 265 As discussed below, those figures may be optimistic, but motor fuel, in particular, is now said to be more frequently of the expected quality, as opposed to when it was generally found to have been adulterated in 2009. Overall, while the Ugandan government has made little evident headway against the potential for massive fraud at the top of the political hierarchy, it has enjoyed some success “in the field.” It should be noted that one contributing factor to that success is that Uganda has no coastline, and therefore no offshore operations. As a result, the multinationals that dominate the market, such as Tullow and Total, can act effectively to mitigate fraud when they choose to, and they have, by and large, made that choice. That said, problems remain, as discussed below. Current Problems Ongoing Theft Smaller instances of theft, such as hijacking tankers and opportunistic siphoning from trucks, certainly occur. Private security companies hired to protect industrial sites have also been accused of fuel theft, as in a 2009 case in which two guards with the firm Ultimate Security siphoned fuel from transformers at a power station. 266 The fuel marking program has, on the whole, seen measurable success, though it does not involve marking of fuel that travels through Uganda toward other countries, especially Rwanda and DRC. But it has also led to creative modalities of fuel theft, especially by the regulators charged with marking and testing fuel. In 2011, the Ugandan newspaper the Daily Monitor conducted a two-month investigation into corruption 265 “Fuel Adulteration Drops to 0.6 percent,” NBS TV Uganda: YouTube, July 1, 2016, https://www.youtube.com/ watch?v=6zHeunpjTpk. 266 Charles Jjuuko, “2 Kayunga Guards Held over Oil Theft,” New Vision, June 20, 2009, http://www.newvision.co.ug/new_vision/ news/1210986/kayunga-guards-held-oil-theft. ATLANTIC COUNCIL 43
Downstream Oil Theft: Global Modalities, Trends, and Remedies in the actual practice of marking and testing fuel. It found that UNBS inspectors at Kenyan border crossing points were, in fact, stealing fuel. While each tanker truck was to have five hundred milliliters of fuel extracted for testing, the inspectors were siphoning twenty-two liters of fuel from each truck. The stolen fuel was then given to “border boys” to sell on the black market for a small commission. Border officials and even some drivers were also involved in the scheme. Given that up to 150 tanker trucks crossed one such border point, Busia, daily, a year’s worth of siphoning amounted to 1.2 million liters of stolen fuel. And that was just one border checkpoint. 267 Ongoing Adulteration Despite the fuel marking program and other measures, and regardless of the Ugandan government’s upbeat statistics, fuel adulteration is still seen as an issue. As noted above, the reinstatement of the kerosene tax in 2014 brought down the preceding year’s spike in adulteration, but the past two years have still seen episodes of tampering that suggest continued widespread activity. In 2014, reports indicated that adulteration, mainly with kerosene, was still widespread in outlying areas; in the absence of filling stations, fuel was often sold directly from tanker trucks, allowing for adulteration by middlemen. 268 Closer to the capital of Kampala, 140 filling stations were closed by regulators in April 2016 for having sold adulterated fuel over the preceding months. 269 Given the marking program, it is hard to envision how the ongoing adulteration and smuggling of fuel in Uganda could occur without the negligence if not collusion of the UNBS. As one law enforcement source frames it, “If someone imports 5 million liters of petrol, and also another 5 million liters of kerosene; you need to ask where they are going to sell all that kerosene. In this day and age of candles, gas and solar, there is not that much demand for kerosene.” 270 That same source also mentioned Petrocity, a firm that owns more than eighty stations and claims 12 percent of the total fuel 267 “UNBS Officials Siphon Fuel into Black Market,” Daily Monitor, July 8, 2011, http://www.monitor.co.ug/News/ National/-/688334/1214370/-/view/printVersion/-/pjudla/-/ index.html. 268 Julia Burpee, “UNBS Broadens Campaign against Adulterated Fuel,” Daily Monitor, August 14, 2014, http://www.monitor. co.ug/Business/Commodities/UNBS-broadens-campaignagainst-adulterated-fuel/-/688610/2417914/-/2ymlegz/-/ percent2523. 269 David Rupiny, “140 Pump Stations Unmasked for Selling Adulterated Fuel,” Uganda Radio Network, April 21, 2016, http://ugandaradionetwork.com/story/140-petrol-stationsselling-adulterated-fuel-unmasked. 270 Interview with Ugandan law enforcement official, date. Interview conducted in confidentiality, and the name of interviewee is withheld by mutual agreement. market in the country, as knowingly selling adulterated fuel. Perhaps the most damning, if ironic, evidence of the failure to completely curb adulteration came in July 2016, when UNBS drivers were instructed to use only Shell, Total, and City Oil stations so as to avoid damage to official vehicles. 271 Ongoing Smuggling Smuggling of fuel, though significantly reduced, also remains a problem in Uganda. One impediment to its eradication may be the ongoing involvement of officials, particularly security and customs officials, who are able to derive personal benefit from either protecting the operations, turning a blind eye toward them, or providing falsified documents legitimizing them. 272 While the state may suffer from the loss of tax revenue, state officials may be benefiting enough to maintain the status quo. Among other groups, the Opec Boys continue to exist, though in a considerably reduced form from the height of their operations. At this point, their role is largely to provide fuel in places where there is limited access to commercial supplies. As noted previously, they have demonstrated a willingness to gouge customers during fuel shortages. A more sophisticated form of smuggling has been perpetrated by a petroleum marketing company called Fuelex Uganda, Limited. The company’s participation, and particularly that of its director, John Imaniraguha, in illicit activities has long been common knowledge, going back until at least 2008, 273 but political, intelligence, and security connections seem to have protected these operations until recently. 274 On June 1, 2016, the URA arrested John Imaniraguha for smuggling fuel into Uganda. 275 He disappeared from jail 271 Benon Herbert Oluka, “UNBS Cars Damaged by Fake Fuel,” Observer, July 13, 2016, http://www.observer.ug/newsheadlines/45301-unbs-cars-damaged-by-fake-fuel. 272 Kristof Titeca, “Tycoons and Contraband: Informal Crossborder Trade in West Nile, North-Western Uganda,” Journal of Eastern African Studies, 6:1, p. 54 (2012) (indicating a history of collusion between smugglers and security agencies). 273 “Fuelex Boss Arrested at Entebbe While Fleeing Out of Uganda,” Insider, June 6, 2016, http://www.theinsider.ug/fuelexboss-arrested-at-entebbe-while-fleeing-out-of-uganda/; Gee Mukana, “Fuelex Boss John Imaniraguha Arrested,” Howwe, June 6, 2016, http://www.howwe.biz/news/showbiz/12285/ fuelex-boss-to-be-charged-with-tax-evasion. 274 Isaiah Mwebaze, “Top Security Chiefs in Panic Over Fuelex Boss’ Arrest,” Eagle Online, June 6, 2016, http://eagle. co.ug/2016/06/06/top-security-chiefs-panic-fuelex-bossarrest-2.html. 275 Charles Etukuri, Jeff Andrew Lule, “Fulex Boss Arrested Over Fuel Smuggling,” New Vision, June 1, 2016, http://www. newvision.co.ug/new_vision/news/1425953/fuelex-bossarrested-fuel-smuggling. 44 ATLANTIC COUNCIL
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Atlantic Council Board of Directors
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