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Shell Uganda caught with ‘unmarked’ fuel

Monitor Online - Truth Every Day

Sunday, February 8, 2009



A fuel dumping and smuggling racket that could have cost the government huge sums of money in evaded taxes has been exposed following an investigation by Uganda National Bureau of Standards.

Among the suspected culprits are officials working with Shell Uganda Ltd, the market leader in petroleum products in the country. UNBS’ investigation established that Shell has recently been in possession of suspected smuggled and untaxed fuel.

The discovery followed a routine check at Shell Malindi in Kibuye and Shell Kaazi in Najjanankumbi both located on Entebbe Road in Kampala.

Under current regulations, fuel destined for the Ugandan market is supposed to be marked at the border by adding a special chemical technically known as a ‘marker’.

This is meant to differentiate fuel for the local market from fuel in transit.

And once a marker is added, it would also mean that customs duties have been paid while the fuel in transit does not attract such dues.

To ensure compliance, UNBS does spot checks from time to time.

“But on Tuesday, January 27 this year, we tested the Shell product and we realised that the concentration of the marker was low,” a UNBS source, who preferred anonymity, said.

This prompted a raid on Shell headquarters where it was also discovered that the one huge tank with fuel had a low concentration of the marker, suggesting that fuel might have been tampered with. This discovery has since put Shell and UNBS on a collision course with the oil company insisting it’s innocent. 

“I don’t know where you are getting your stories from but we have no problem as far as we are concerned,” said Mr Ivan Kyayonka, Shell’s country director.

“UNBS have not done their work properly; they did not put enough marker in our product,” he said. UNBS, however, insists they did their job right.

“My people did the investigation and have already submitted their findings to URA,” Dr Terry Kahuma, the executive director of UNBS said, adding, “ I cannot reveal details to the press but there is no way we can under-mark a product because marking was done in the presence of Shell officials.”

Apparently, in the two fuel stations and at Shell headquarters, it was found that at least 84,000 litres of petrol had either been dumped or smuggled only in one week. With each litre of petrol attracting a tax of Shs800 this suggests that for the 84,000 litres alone, Shell did not pay Shs67.2million in taxes.

Shell runs more than 100 stations around the country and UNBS did not check all of them during the week in which the discovery was made.

On average, sources say, Shell imports between 32-33 million litres of fuel monthly, of which 17million is supplied to Aggrekko, the thermal power generating concern, while the rest is sold on retail.

But Mr Kyayonka is adamant that “the only thing we have discovered is that UNBS has under-marked our product.” “The reconciliation between us and URA is clear; we paid all taxes,” he said.

Experts in the fuel business, who did not want to be named because of the delicate nature of this matter, told Sunday Monitor that payment of taxes at the border, however, does not guarantee that a given truck will actually deliver legitimate fuel at the appointed destination. It can be switched along the way.

And industry sources say that because dumped or smuggled fuel is not marked, when mixed with the marked product, it lowers the concentration of the marker.

In this particular case, dumping, a process where fuel on transit to other countries is deliberately offloaded and sold would occur, while smuggling implies the fuel arrived into the country illegally.

Sunday Monitor learnt that in some cases, trucks in transit offload fuel here and then reload water into their tanks before they cross to neighbouring countries, just to ensure that they have proper documentation.

After they cross the borders, they jettison the water and make a return leg. This is what could have occurred in the Shell case.

According to sources at Busia border, some trucks enter the country with marked fuel but along the way to Kampala, they offload some marked fuel and replace it with dumped or smuggled fuel. The rationale is that marked fuel can be sold anytime whereas smuggled/untaxed fuel has to be sold as quickly as possible to avoid detection.

In the Shell case, for instance, after discovering on January 27 that its fuel had been adulterated, UNBS officials on January 28 again tested trucks that carried Shell products.

“We found out that fuel had already been tampered with; in fact one truck had no marker at all in one of its compartments meaning the marked fuel had vanished,” said a UNBS official, “But on Monday, February 2, UNBS tested all Shell trucks and they were okay.”

Sunday Monitor investigations reveal that since UNBS found anomalies in Shell fuel, Mr Kyayonka has exerted pressure on several stakeholders to denounce UNBS as incompetent.

Mr Kyayonka is reported to have called an industry meeting on Monday at his offices and pushed for URA to take over the fuel marking role from UNBS.

When asked to comment about the said meeting, Mr Kyayonka this week told Sunday Monitor: “I don’t know about that meeting.”

He, however, quickly changed his mind conceding that the meeting took place and gave reasons why he wants URA to take over.
“UNBS had been given responsibility but they are not marking fuel properly,” he said.

Mr Kyayonka said Shell pays UNBS to mark the fuel but they were not doing a good job. But other industry players told Sunday Monitor that Mr Kyayonka was taking advantage of Shell being a leading tax payer to bulldoze state agencies.

For instance Mr Kyayonka summoned the Commissioner in charge of liquid fuels at the Energy Ministry, Mr Ben Pwodo, to his office for the said Monday meeting.

Mr Pwodo confirmed attending the meeting but said there was “nothing peculiar” in him going to Mr Kyayonka’s office.
“It’s not a question of (him) summoning me,” Mr Pwodo said, adding, “The law is very clear and we can’t allow another authority.”

On Mr Kyayonka’s alleged bid to unsettle UNBS, Mr Pwodo said “I have heard about that claim but in effect it’s not operative. If he tries to impose things on other people, he will be brought to book.”

Sources in the Energy ministry have told Sunday Monitor that Mr Kyayonka has previously been excited whenever UNBS penalised smaller dealers but now that “he has been caught in the act,” he is ridiculing the Standards agency.

URA officials declined to comment on the saga with the tax body’s spokesperson, Mr Paul Kyeyune referring us to the Assistant Commissioner in charge of Trade, Richard Kamajugo whom we were unable to reach by press time.

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