DOWNSTREAM OIL THEFT: COUNTERMEASURES AND GOOD PRACTICES
Legal and Policy Measures
W
hile concrete countermeasures are the first and most direct line of intervention in downstream oil and fuel theft, the reality is that they alter only the “risk” portion of criminals’ risk-reward calculus. An effective suite of mitigating practices needs to address the “reward” aspect of that dynamic as well. By altering the policy environment in which criminals operate, a government can decrease the lure of profiteering through adulteration, dilution, or smuggling; within a domestic legal framework that enables effective prosecution and meaningful penalties for downstream crime, the criminal calculus becomes even more problematic.
Fuel Subsidies
T
here is no more direct way to disincentivize downstream crime than through reforming or dismantling price interventions that incentivize criminal activity. As framed in a 2005 study on illicit downstream activity in Senegal, “distortion in the prices of the various oil products and grades provides the main incentive for the ongoing malpractice in the downstream oil sector.”68
Consumer fuel prices reflect a buildup that may include the landed cost of the crude (if domestically refined) or refined products, taxes and fees assessed, and operating costs to downstream operators from refinery to pump. Interventions, including subsidies and other adjustment mechanisms, can be staged at a number of junctures in that supply chain. Fuel subsidies are the most common form of price intervention that encourages downstream crime—especially consumer subsidies, which might either serve end consumers in general or target specific groups, such as low-income households or
small-scale industries. Around the world, fuel subsidies are the prime enabling conditions for illegal arbitrage through smuggling or product dumping, and for profiteering through fuel adulteration. In a recent survey, the Organization for Economic Cooperation and Development (OECD) listed forty countries engaged in such fuel price interventions.69 Subsidies are notoriously difficult to define or trace as they take many forms, are often informal and “off the books,” and can be treated by governments with a discretion bordering on secrecy. Few governments publish, at least in any systematic way, data on fuel subsidies.70 Furthermore, their effects must be accounted for in combination with other fiscal mechanisms. The intricacies that bedevil any thorough discussion of energy subsidies are, therefore, beyond the scope of this report, and in any case have been examined in some of the policy briefs cited herein. Seldom, however, do those publications emphasize the role fuel subsidies play in downstream criminal activities. The issue of pricing is often so critical in combating downstream crime, both domestically and across borders, that it merits examination in light of this issue alone. In the most basic terms, fuel subsidies can be divided into pre-tax subsidies, which are limited to addressing supply costs and constitute a small percentage of total subsidies, and post-tax subsidies, which are far broader and make up the vast majority of subsidies, especially consumer subsidies. According to the International Energy Agency (IEA), at a high point in 2013, the global cost of consumer fossil fuel subsidies alone was estimated at $458 billion.71 Further distinctions can be drawn between blanket subsidies and targeted subsidies. Blanket subsidies set a uniform price on a given product for all consumers, while targeted subsidies make use of a range of mechanisms
68 Amadou Kane, “Alleviating Fuel Adulteration Practices in the Downstream Sector in Senegal,” ESMAP Technical Paper 079, World Bank, September 2005, https://www.esmap.org/sites/default/files/esmap-files/07905.Technical%20Paper_Alleviating%20Fuel%20Adulteration%20Practices%20in%20the%20 Downstream%20Oil%20Sector%20in%20Senegal.pdf. 69 Organization for Economic Cooperation and Development (OECD)/International Energy Agency (IEA), “Update on Recent Progress in Reform of Inefficient Fossil-Fuel Subsidies That Encourage Wasteful Consumption,” 2019, 14, https://oecd.org/fossil-fuels/publication/OECD-IEA-G20-Fossil-Fuel-SubsidiesReform-Update-2019.pdf. 70 Fossil Fuel Subsidies in Asia: Trends, Impacts, and Reforms, Asian Development Bank, 2016, 9, https://www.adb.org/sites/default/files/publication/182255/ fossil-fuel-subsidies-asia.pdf. 71 Sarabjeet Hayer, “Fossil Fuel Subsidies,” European Parliament Directorate-General for Internal Policies, 2017, 5, http://www.europarl.europa.eu/RegData/ etudes/IDAN/2017/595372/IPOL_IDA(2017)595372_EN.pdf.
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