OPINION – Fuel marking and monitoring: A great achievement in tackling fuel adulteration and dumping
By Pavel Oimeke
Have you had the unfortunate experience of visiting a fuel station to fill your tank and had to make a costly visit to the garage shortly after because the engine malfunctioned? Have you heard of a friend or other motorists complaining of filling their tanks with ‘dirty fuel’? This could be caused by adulterated fuel whose quality has been weakened by adding inferior substances.
From introduction of kerosene into petrol or diesel with the resultant mixtures sold to consumers as pure petrol or diesel to diversion of duty-exempt export fuel for illegal sale in the local market, fuel adulteration and dumping has over the years dealt a major blow to the petroleum sector.
These malpractices are mainly carried out to take advantage of the price differential between domestic Kerosene and Petrol and Diesel, particularly before the introduction of the anti-adulteration levy, and the zero-rated export bound petroleum fuels by selling the same as taxed local product.
Globally, fuel marking has been critical in detecting and preventing the adulteration of fuel and illegal importation of low-tax products and the dumping of transit, export or subsidised fuels.
Fuel marking can be defined as the introduction of trace quantities of a unique identifier (the marker), typically a bio-chemical liquid, into fuel products to enable tracking of the movement of fuel products throughout the entire supply chain, from refinery to retail.
The exercise is carried out to preserve and protect the quality and purity of petroleum products by making it possible to determine whether the fuel in question is legal and whether it has been mixed with inferior quality fuels.
In Kenya, the fuel marking program started in 1998. At the time of implementation, about 25% of the stations tested, were found to be selling petroleum products that were either contaminated with kerosene or meant for export.
This presented unfair competition for legitimate traders as illegitimate traders sold dumped or adulterated motor fuels way below market price. Fuel dumping and adulteration has also led to loss of government revenue from tax evasion when unscrupulous traders dilute high-priced, taxed fuels with cheaper or low-taxed products.
Currently, illicit fuel sales are estimated at Ksh.15 trillion (150 USD billion) per annum globally. In Kenya, approximately Ksh. 34 billion (340 USD million) is lost in tax revenue per annum due to accrued tax differential between Kerosene and super petrol in fuel adulteration.
Further, fuel adulteration reduces Kenya’s competitive advantage as the preferred Import / Export route for our neighboring countries leading to lower transport volumes hence revenue loss of transit charges by the government. Kenya’s Northern Corridor is shorter than Tanzania’s by almost 1,000Km and has an extensive pipeline network of about 800 KM to Eldoret and Kisumu. This makes transportation of petroleum products bound for Uganda, South Sudan, Rwanda, Burundi, and Eastern DRC through Kenya safer, cheaper, and more efficient. However, adulteration of transit petroleum products erodes the confidence in their quality while being transported through Kenya.
The use of contaminated fuel leads to damage of vehicle engines and reduction of their functional lives due to cylinder lining wear and eventual damage. Moreover, fuel adulteration has immensely contributed towards environmental pollution through waste byproducts and greenhouse gas emissions, caused by incomplete combustion of fuel and increased fuel consumption. This poses a threat to the health of Kenyans by causing respiratory complications, among others.
Since the fuel marking programme begun in Kenya, we have witnessed a sustained decline of adulteration and dumping cases to as low as 2% for all the stations tested in the country by 2014. Today, the Energy and Petroleum Regulatory Authority (EPRA) which is mandated under section 92 of the Petroleum Act, 2019 to monitor petroleum products offered for sale in the local market, has further enhanced the program with tremendous results achieved. Consequently, with the introduction of anti-adulteration levy in September 2018 to date only KSh 2.6 Million (24,600 USD) is estimated to have been lost in tax revenue due to adulteration and mainly dumping. This indicates a milestone in Government efforts in curbing fuel adulteration and dumping and maximizing revenue collection. By the end of 2019, non-compliance was as its lowest at 0.18 per cent.
The near a hundred percent (100%) compliance levels of the program has resulted in a remarkable increase in the number of profitable independent stations and indigenous oil marketing companies and created a level playground for all the oil marketing operators. Additionally, there has been remarkable reduction in air pollution due to damaged vehicle engines.
To ensure that fuel adulteration is completely eradicated, the government through EPRA introduced additional measures including crackdowns on illegal fuel sites which are suspected to be undertaking adulteration and dumping of export products in the local market. From July 2018 to date there have been continuous nationwide crackdowns and demolition of illegal fuel sites spearheaded by EPRA in conjunction with other Government Agencies.
Furthermore, in 2019, the government in consultation with policy makers and industry stakeholders, introduced the anti-adulteration levy on local Kerosene. This levy removes the incentive of price differential between Domestic Kerosene and Super Petrol and Diesel. The Petroleum Act No. 2 of 2019 also introduces punitive measures for anyone found adulterating or dumping export bound fuel.
These laws and regulations are enforced by EPRA through its Enforcement and Customer Protection Directorate and regional offices across the country through regular fuel quality inspection of all the petroleum facilities for compliance.
In Early April, EPRA shut down seven petrol stations after they were found to have violated their licenses – selling diesel that had the chemical marker used on export fuel – offering diesel meant for export.
While there have been great achievements in tackling fuel adulteration, there is still residual non-compliance on fuel dumping with compliance levels standing at 99.2% by the end of 2019. This can be attributed to the uncontrolled segment made of transporters and their drivers and the mushrooming of illegal petroleum sites.
To this end, EPRA has now embarked on a strict licensing regime of the whole fuel supply chain which includes the licensing of petroleum truck drivers and retail filling stations in order to combat this residual non-compliance. Daily inspection of filling stations has also been intensified.
The strides made so far show that achieving one hundred percent eradication of fuel fraud is possible with vigilance at every stage of the downstream process – the refineries or fuel depots, through wholesale depots and the transport network.
However, this requires participation and collaboration of all stakeholders involved in the petroleum supply chain and investing in advanced testing kits at ports, which would add another robust layer of deterrence in securing the fuel supply chain.
The writer, Pavel Oimeke, is the Director General, Energy & Petroleum Regulatory Authority.