Libya Tribune

By Tim Eaton

As Libya’s war economy persists, prospects for the restoration of functioning central governance become more distant.

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PART THREE

Fuel smuggling

Fuel smuggling is doubly damaging for the state because Libya refines most of its crude oil overseas. Imports of refined products have reportedly increased by nearly 65 per cent since 2012.

According to leaked reports, the cost of these imports was $2.9 billion in 2016 but may have climbed to approximately $5 billion in 2017. Libyan authorities have several broad estimates of the scale of fuel smuggling. However, it is not clear how any of these figures are calculated, and there is a demonstrable need for greater scrutiny of the problem.

In January 2017, the head of the investigations office of the Libyan attorney general told a press conference that fuel smuggling had cost the country LYD5 billion ($3.6 billion), although it was

unclear over what period the losses had occurred. A leaked report citing confidential sources has indicated that only around 15 per cent of the projected income from taxes of domestically distributed refined fuel products was received by the state from January to November 2017.

This would indicate that as much as 85 per cent of those supplies may have been diverted in some way. The Libyan Audit Bureau, meanwhile, believes that around 30 per cent of subsidized fuel is smuggled. The Bureau’s figures would place the loss to the Libyan state at around $1.8 billion per annum over the past five years.

The cost to the state must be distinguished from the amount of illicit revenues earned by smugglers, who in some cases appear to steal fuel outright and in other cases benefit from arbitrage opportunities. Fuel smuggling in Libya falls into three principal categories: cross-border overland smuggling of small volumes of fuel; the diversion of fuel supplies within the country, which are then sold at black-market rates instead of subsidized rates; and maritime smuggling of much larger quantities of diesel.

The political economy of each type of smuggling is different. The cross-border smuggling of refined fuel is well established. In its most overt form, it consists of relatively small-scale smugglers crossing the Tunisian border, using modified cars and vans fitted with oversized fuel tanks or series of jerry cans. Typically, these operators pay a local subsidized rate within Libya and then sell the fuel at a profit once they cross the border into Tunisia.

The official price at the pump in Tunisia is currently DT1.8 ($0.75) per litre for petrol (for vehicles), while the official subsidized rate in Libya is LYD0.15 ($0.11) per litre, offering a significant margin.

Since 2011, larger-scale schemes have also developed in which fuel is diverted directly from refineries, ports and warehouses. 52 These schemes appear to have closer connections to Libya’s war economy, requiring access to protection markets and international criminal networks.

Such operations also require the use of falsified paperwork. In some cases, this is to enable trucks to load fuel and then sell it (at inflated rates) at informal and improperly registered petrol stations, instead of delivering it to formal petrol stations (which would sell the fuel at the official discounted rate).

Ghost’ petrol stations – which exist only on paper – are the destination for much of the fuel. In late 2017, a National Oil Corporation (NOC) team sent to spot-check 105 petrol stations believed to be receiving regular deliveries of fuel found that 87 of them were non-operational.

In an outspoken intervention on the issue in January 2018, the NOC’s chairman, Mustafa Sanalla, said that attempts by the Brega Fuel and Marketing Company to end deliveries to petrol stations that had registered with the Ministry of Economy after 2010 – most of which were believed to be ghost stations – led to the NOC receiving a letter from the prime minister’s office, opposing the decision as illegal.

This was ‘a classic case of state capture’, said Sanalla, who implied that those running fuel smuggling schemes had either been able to place pressure on the prime minister’s office or had had help from

complicit officials. There is also the problem of legitimate fuel deliveries being diverted en route to their destinations. Numerous trucks heading to southern Libya have been hijacked, which has led the NOC to provide armed escorts on some occasions.

It is a source of much local frustration that many official petrol stations, particularly in the south, are closed while their unofficial rivals continue to sell fuel at increased prices nearby, sometimes at more than six times the subsidized rate. Some of these deliveries are also diverted out of the country.

A recent report by the UN Panel of Experts on Sudan indicated that Darfurian rebel groups derive income through the diversion of fuel tankers in Libya, with the fuel sold in Darfur.

Following the Libyan Audit Bureau’s estimate that 30 per cent of petrol (for cars) is diverted, this would equate to over 1 million metric tonnes in 2016 57 that may have been arbitraged by smuggling networks with varying degrees of profit.

Libya’s dysfunction has also underpinned the growth of higher-value seaborne smuggling of diesel. These schemes allow refined products to enter international fuel markets. The investigation surrounding a prominent smuggler, known as Fahmi Salim Ben Khalifa, and his network offers an insight into these operations.

Two months after Salim’s arrest in Libya in August 2017, Italian police announced the findings of an investigation that had tracked at least $35 million worth of smuggled low-grade Libyan diesel, allegedly delivered by Salim’s network to petrol stations in Italy and beyond.

It appears that those involved in the scheme used fraudulent paperwork to obtain the fuel before loading it on to small boats, which then transferred the fuel to larger boats at sea. It was eventually sold in Europe at more than 60 per cent below the market rate.

This case does not seem to have been an isolated incident. In 2016, an Italian newspaper website published a graphic visualization of research by Windward, an Israeli maritime data analytics company, which claimed to have tracked the movements of four ships – the complex manoeuvres of these vessels were reportedly intended to disguise the flow of smuggled fuel from Libya.

Months after the announcement of the Italian police investigation’s findings, a press report published a translation of the letter of certification used by Salim’s front company, indicating that it was signed by Ali Qatrani, a boycotting member of the Presidency Council with close links to Field Marshal Haftar.

Qatrani had apparently signed the letter in 2015 in his capacity as chairman of the Economy, Trade and Investment Committee of the HoR. He has denied wrongdoing.

Moreover, the investigation asserted that Salim had obtained the diesel from the refinery in Zawiya. This highlights the interconnections between different forms of smuggling in Libya. The head of the Zawiya Petroleum Facilities Guard (PFG), the arm of the NOC charged with securing assets, is Mohamed al-Khushlaf, who – as mentioned – is also a commander in the Nasr Brigade.

The distinction between the Zawiya PFG and the Nasr Brigade is unclear. The NOC’s Sanalla has acknowledged the limitations of his power over elements of the PFG, admitting that it has ‘devolved into local fiefs’.

In 2017, a campaign by the Brega Fuel Crisis Committee – originally set up in 2015 to tackle fuel shortages in Tripoli – and the NOC sought to fight back against the fuel smugglers.

As part of the campaign, in January 2017 Sanalla publicly accused the Western PFG of ‘complicity with fuel smugglers’, and even reportedly mentioned Khushlaf by name. An NOC statement then asserted that fuel smuggling gangs were responsible for security breaches at the Zawiya refinery (where fuel smuggling had increased).

Yet the events that followed indicated the limits of the ability of the NOC and the Committee to enforce any clampdown.

While Sanalla’s comments led the Zawiya PFG, responsible for the refinery’s security, to announce its withdrawal from the oil complex and angrily deny involvement in smuggling, days later supplies to a power station in the same city were shut down by ‘protesters’ rumoured to be linked to Khushlaf’s forces.

This left the power station unable to supply the electrical grid, causing a blackout that extended nearly 900 km along Libya’s coastline, from the western border with Tunisia to the city of Ajdabiya. It was the largest such blackout in recent memory. Despite the episode, at the time of writing, Khushlaf retains control over the refinery.

Nonetheless, the NOC and the Committee have had some successes against fuel smugglers. The Committee, via its Facebook page, extensively documents its efforts to clamp down on the diversion of fuel deliveries, although it is difficult to know how successful these efforts have been.

In April 2017 the Committee announced the launch of an operation, ‘Mediterranean Storm’, in concert with Libyan navy and air force units, to combat seaborne smuggling. Two apparently significant interceptions followed only days after the aforementioned apprehension of Salim.

On 28 August a tanker trying to smuggle 6 million litres of fuel was intercepted, and on 31 August forces apprehended a tanker reportedly laden with 1.2 million litres of fuel. Yet it is not known how many ships have evaded interception.

In June 2017, the Committee announced that it had reduced fuel smuggling by around 90 per cent. But no data are available to back such a conclusion.

At the time of writing, the NOC is seeking to establish a strategy to counter fuel smuggling. Attempts to reform the PFG and fuel distribution practices are likely to be key areas of focus.

This will be a challenging task, however, as it appears that the traditional small-scale cross-border smuggling of subsidized fuel is being eclipsed by larger-scale diversion – both overland and maritime – with closer connections to the war economy.

to be continued in part 4

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Tim Eaton is a research fellow within the Middle East and North Africa Programme at Chatham House, where he has been based since 2014. Before joining Chatham House, he was senior projects manager, Middle East at BBC Media Action, the BBC’s international development charity. He worked across the Middle East on projects in Libya, Iraq and Egypt.

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