How Fuel Integrity Programs Can Help Developing Asian Economies
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Transcript of How Fuel Integrity Programs Can Help Developing Asian Economies
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Authentix
Fuel integrity programs forcombatting fuel smugglingand enhancing revenuesand fuel quality
November 6, 20141
Anti-counterfeiting Brand Protection Program Integrity
Proprietary and Confidential 2014 Authentix
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Agenda
Authentix Overview
Fuel Fraud Problem Overview
Fuel Integrity Programs
Case Studies Questions
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Authentix enables brand owners andgovernments to build market confidenceand maximize revenueby authenticating
products to combat counterfeiting, protectbrand equity and assure program integrity
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Excise TaxSubsidiesFitness and QualityMarket-Promotions
SpiritsFuels and LubricantsConsumer Packaged GoodsCosmetics
AgrochemicalsPharmaceuticals
CurrencyTax StampsSecure DocumentsProduct Counterfeiting
ANTI-COUNTERFEITING BRAND PROTECTION PROGRAM INTEGRITY
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November 6, 2014Proprietary and Confidential 2013 Authentix4
Provensecurity,integrity and privacy
Trustedby leadingorganizations
Authentix is trusted by some of themost prestigious organizations in the
world. We adhere to global integritystandards to protect our clients
programs and the information theseprograms produce
4Leading Oil & Gas
Companies
10National
Governments
5 of top 10Pharmaceutical
Companies
6Industry Leading
Central Banks
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BRAND PROTECTION TAX EVASION SUBSIDY ABUSE
Market ExpansionPremium BrandsProgram Integrity
Anti-CounterfeitingRetail Packaging
Proven High ROIComprehensive ProgramsQuantitative ResultsBest Practices
Actionable Intelligence
Proven ProgramsBroadest Range of SolutionsLow Level Detection CapabilityBest Practices
Actionable Intelligence
Oil and Gas
Over 20 years of experience protecting morethan 1 trillion liters of petroleum productsglobally to create leading fuel integrity programs
for brand protection as well as combating taxevasion and subsidy abuse
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Authentix CredentialsOil & Gas
Proprietary and Confidential 2014 Authentix6
Global Leader - Commercial US Oil Marketing Company (OMC)750% ROI;
50% improvement in Random Sample Failure Rate
South American Brand OMCSales increased byover 10%; Revenue recovery more than $330 Millionover 3 years
Over $5 Billion USD recovered to date
Global Leader - Governments 11 countriescurrently utilize Authentixsolutions
African nation recovered $70M in additionalexcise tax revenue in the first year of a fuelmarking program
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Fuel Fraud
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Problem Statement
Criminal activities associated with subsidies and
tax differentials result in significant financial
losses to governments around the world.
In addition to the financial impact, there are
social costs, including:
Lack of transparency and accountability
Failure to effectively manage fuel supplies andquality
Environmental impacts
Increased dependence on fuel imports
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Criminals may also profit from the adulteration ofhigher cost fuels with lower cost fuels or solvents
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India Example : Di lut ion of Diesel with Subsid ized Kerosene
Diesel retail = 36 Rs/L Kero Retail = 10Rs/L
Tax
27 Rs/L
(80%)
9 Rs/L
(20%)
Diesel
Illicit Profitfrom
SubsidyAbuse
9.5 Rs/L(23%)
26.5 Rs/L(74%)
.05 Rs/LTaxes
Subsidized Kero
LEGAL SALES ILLEGAL SALESGov loses 8.5 Rs/Lin taxes
Criminals ProfitOver 72% GM
Kero not used bythe poor
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A common illicit practice is to illegally divert anacceptable fuel with a lower price and sell it at fullprice in a higher tax area
Source countrys subsidy benefitscriminals instead of intendedrecipients
Destination country does not receive
the appropriate tax payments The lower taxed (priced) fuel may be
obtained through several methods: Diversion of a subsidized fuel,
Smugglingof fuel from a low taxcountry or area into a higher tax area,or
Diversion of tax-free transit fuels orexport fuels
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Example: If you are able to
smuggle diesel out of
Venezuela you could sell it at
90x the purchase price in
neighboring countries.
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Fuel Fraud
Diversion of fuels occur in multiple ways
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1Lower grade tohigher grade
branded fuel
2Unbranded andundifferentiatedfuel to brandedfuel.
3
Lower taxed non-road fuels to
higher taxed roadfuels.
4Mixing wasteproducts and non-petroleumproducts intofuels.
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Government subsidies (tax free) that createprice differences in fuels have contributed to worldwide fraud problem
Subsidized fuels are often diverted from their intendedsupply chain
Used domestically to dilute higher taxed fuels
Smuggled out of the country to higher priced markets in othercountries
Mining, road construction, others
10% abuse rate = $200B/yr problem (Authentix
experience with programs is that this number is usually20-30%)
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Through a combination of diversion, smuggling,and dilution tactics, criminals can steal hundredsof millions from governments
Due to very high dollar amounts at stake, organized crimeis usually involved
Criminal organizations are well funded, organized, and very
well equipped
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FuelFraud
Smuggling
Transit Fuel
Smuggling
Inferior Products
TaxesCollected
CitizensHelped S
ubsidy
Programs Re
venue
Programs
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Arbitrage ActivityCriminals take advantage
of fuel price arbitrage through:
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Marked fuel
Unmarked fuel
Unmarked fuelor contaminants
Marked fuel
Dilution
Adulteration
Depot
Additive
Transport
Route
Border
Smuggling
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Fuel Integrity Programsto Fight Fuel Fraud
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f
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Mark all high or regularly taxed fuels with covert markers to be ableto detect dilution of legal fuel
Mark known or suspected adulterants (such as subsidized diesel,kerosene, etc.) to be able to detect their presence in other products
Deliver sampling, testing, and reporting tools to provide actionableintelligence to fight fraud
Assure forensic integrity of system to allow for enforceability underthe rule of law.
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Comprehensive Programs | Best Practices | Quantitative Fuel Sample Results | Timely Actionable Intelligence
Fuel integrity programs help governments identifythe sources of fraud and take action to addressthem
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Fuel Integrity Program Deployment
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Refinery
Terminal
Gasoline
Additive with
nanomarker
AXISTMWeb-based program mgmt. tool
Data
Reporting
FieldScreening
FieldScreening
Station A Station B Station C
SampleLab
Testing
http://c/Documents%20and%20Settings/TDriscoll/Local%20Settings/Temporary%20Internet%20Files/OLKDD/Michigan_Tax_Stamp_video.m4v -
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Case Studies
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Case StudyGuyana Energy Agency (GEA)
Problem Statement: Non-taxed fuel is smuggled
into the country and sold illegally to retail sites, whiletaxed road fuels are being adulterated with subsidizedproducts (kerosene and mining fuels).
Technology Used Automated injection marking with covert NIR
fluorescent dyes and laboratory markers intolegally imported fuels
Manual marking of subsidized products to detectpresence in high tax fuel with field test kit
Field devices to detect dilution of legal fuel, withlaboratory confirmation via HPLC methods
Benefits realized Over 90% reduction in dilution detected in testedsamples
17% increase in legitimate sales of fuel products Over 40 analytical chemistry jobs created in the
GEA for Guyanese citizens
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Ghana National Petroleum Authority(NPA)
Problem Statement: The adulteration of petroleumproducts offered for sale at retail outlets negatively affectsthe quality of the available supply, while depriving thegovernment of tax revenue.
Technology Used
Full-taxed domestic fuels are marked with a field covert NIR
fluorescent marker for screening and dilution detection, anda forensic molecular marker for lab confirmation
Subsidized productsmarked to detect adulteration indomestic fuel
Benefits realized
Improvement in the quality of the fuel supply of the country(78% reduction in adulteration in sampled products)
Estimated increase excise tax collection of over GH 43million per annum
National infrastructure of advanced mass spectroscopy labsdeployed by NPA (4 regional labs)
Over 150 Ghanaians employed on the program
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Case StudySerbia
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Problem Statement: Non-taxed fuel issmuggled into the country and sold illegally toretail sites, while taxed road fuels are beingadulterated with subsidized products (heating oil)and inferior products (base oils)
Technology Used
Marking with covert NIR fluorescent dyes andmolecular markers into all legally imported fuels Field devices to detect dilution of legal fuel, with
laboratory confirmation via GC/MS methods
Benefits realized In the first five months of the program35M in
additional excise taxes collected
Sales of base oils (known diesel adulterant) droppedby 7 times The Ministry of Energy expects they will collect
80M/year in taxes as a result of the program Retail fuel sales up ~15% despite economic
downturn and catastrophic flooding in Serbia
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SerbiaPublic Relations
The Ministry of Energy is the government sponsor for the programand recognized the need for an effective public relations campaign
Many Serbians were benefitting from illicit trade including some in thegovernment
Gaining program momentum and public support is critical successfactor to the program
All elements of the program are discussed publicly with a high levelof transparency
Frequent communication by multiple media outlets is ongoing
Minimum of 30 minutes of television coverage per month
Print media5/month
Radio 5/month
Web media 10 articles /month
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Serbia Press Examples
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Serbia Press Examples
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Case StudyKenya: Excise Tax Recovery Program
Problem Statement tax free transit fuels being smuggled and resold without paying
tax
Fuels being adulterated with subsidized kerosene
Loss of sales volumes and tax revenue
Technology Used - Transit and subsidized fuels markedwith covert molecular recognition markers, domestic fueltested in the field with simple test kits to detect the
presence of marked products (evidence of adulteration) Benefits realized - In the first year, fuel excise tax
revenue increased $70M
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PROGRAM START: 1998