Mozambique is taking a high-tech approach to fuel fraud

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A vessel was recently seized in Angola’s northern Zaire province, apparently in the act of smuggling some 2,425 litres of fuel across the border into the Democratic Republic of Congo (DRC).

This type of downstream oil theft is a growing problem, not only in Angola, but right across the African continent. It’s believed that a third of Nigeria’s refined fuel products are exported illegally to neighbouring nations, for example. While some smuggling operations exploit cross-border price disparities, others amplify profitability by topping fuel up with cheaper substances. Simple tax evasion is the commonest form of fuel fraud by far.

This lucrative black market – which costs governments some US$133 billion each year – is sapping Africa’s struggling economies of much-needed excise revenues, funnelling cash to organised crime groups, and adversely impacting the environment through the distribution of contaminated or adulterated fuel.

In South-eastern Africa, countries along the so-called Maputo Corridor (South Africa, Swaziland and Mozambique) have become targets for the criminal networks that profit from undercutting local fuel prices and present a serious threat to economic growth and development in the region. In particular, the illicit trade is undermining UN Sustainable Development Goals – especially those targeted on clean energy, health and well-being.

Switching to high-tech solutions

Bucking the trend, however, is Angola’s fellow Lusophone country Mozambique, whose administration seems to hit on an effective strategy for clamping down on smuggling.

For several years now, Mozambique has been using high-tech fuel markers to ensure that fuel hasn’t been smuggled or tampered with—a programme which has given authorities important insights into how fuel smuggling networks function and has sharply increased the country’s fuel-related tax revenue.

While its’s true that a fuel ‘dye’ system designed to flag differing tax rates has been widely used in Europe for many years, the deployment of counter-marking processes by criminals looking to subvert the scheme has impacted its efficacy. The recent development of advanced, and invisible, molecular markers means there’s now a powerful new weapon in the war against fuel theft and adulteration.

According to recent report from Atlantic Council’s Global Energy Center, it’s an approach that’s already returning significant benefits to the governments implementing it – including revenue recovery and an uptick in governance confidence among consumers and investors. 

A creative response to economic challenges 

Fuel is a key component of Mozambique’s national income, representing circa 10 percent of total state revenues. With a pilot study in 2013 and 2014 indicating that Mozambique was losing as much as $60 million a year, it’s a leak that can’t be ignored.

Mozambique’s response has been impressive. The molecular marking service which Maputo implemented provides officials with an effective way of ensuring authenticity without adversely affecting fuel quality and has led to in a significant increase in tax revenues from fuel sales. Following the introduction of its fuel integrity programme, Mozambique saw a 32 percent revenue increase in just six months – a figure that may well have been higher without the impact of cyclones Idai and Kenneth.

The programme has also allowed Mozambican authorities to gain important intelligence on fuel fraud – not least the widespread and potentially damaging practice of diluting fuel with cheaper hydrocarbons. The fuel marking system has stamped out much of this activity – as evidenced by the sudden collapse in demand for kerosene in the country.

Building blocks to a brighter future

It’s an important win for Mozambique, whose economic recovery has stalled due to cyclones Idai and Kenneth and the coronavirus pandemic. Prior to Covid-19, IMF forecasts were predicting a buoyant 2021 growth rate of almost 5 percent. After ExxonMobil’s decision to postpone further investment in a natural gas project in the country’s Rovuma Basin, it’s expected the economy will now contract in the short term, especially if other multinationals delay planned fuel projects in the region.

Molecular markers alone won’t eliminate illicit fuel trade on their own, but they can contribute hugely to a transnational response that could set African nations like Mozambique on the path to a more stable economic recovery. If technical solutions, like fuel markers and GPS systems, are implemented as part of a coordinated approach to tackling cross-border crime, they represent a powerful tool in the drive to improve supply chain integrity and plug revenue leaks.

Cooperation between states is also crucial – especially in pursuing cross-border activities and disincentivising fuel crime. Investing in the overhaul of regulatory structures and rationalising systems of taxation, all while educating consumers, will help turn the tide against the criminal gangs that enrich themselves at the expense of hard-working citizens. It’s a necessary step in the prioritisation of economic development and global security.

Mozambique’s fuel marking contract expires in the coming months, but Maputo has several reasons to continue the programme. The country’s long-term recovery is heavily dependent on tapping into sustainable revenue sources. As the pandemic takes its toll on public health spending, bolstering the budget – without adding to the government’s existing debt burden – will mean that collecting tax revenues from fuel becomes an even greater imperative.