K. Oanh Ha
Over the years, the office has investigated drug and human trafficking. In 2022, officers began seeing another trend: Albanian fishing vessels engaged in ship-to-ship transfers at sea with boats getting deliveries of fuel smuggled out of Libya.
Libya, which has the largest oil reserves in Africa, has little refining capacity. So the national oil company imports fuel at market prices and sells it to citizens at a steep discount, practically giving it away as a social benefit, creating opportunities for smugglers to sell it at higher prices.
In January 2023, the Guardia di Finanza helped catch two fishing vessels, the Albanian-flagged Geni and a Libyan-flagged boat, transferring fuel using rubber tubes. All told, they have busted five fuel-smuggling operations since Russia invaded Ukraine, according to Lt. Col. Davide D’Aponte, who was in charge of the outpost in Durres until last month.
“The problem has become a very pronounced one since the Russian war,” D’Aponte said in an interview at his office overlooking the port. “In the past, it was a small-time crime, fishing boats, fishermen who profited directly. Now we are seeing an increase and internationalization of this phenomenon, with organized crime involved too.”
Ilir Malindi, a lawyer representing the owner of the Geni, said it’s a common practice for Albanian fishing vessels to go to Libya to buy subsidized fuel for about 25 cents a liter. He said almost every Albanian fishing vessel is retrofitted with extra storage capacity to bring aboard fuel. The owner of the Geni, who is Malindi’s son, has made several trips to Tripoli to sell fish and buy fuel to operate his boat, he said. He has pleaded not guilty to smuggling excise-paying goods. A trial date hasn’t been set.
The case of the Queen Majeda suggested something bigger. Albanian prosecutors didn’t say where the fuel had come from, but they allege it was illegally traded. The captain and three crew members face prison sentences of as much as 10 years. Six others were allowed to go home.
Shaalah and the crew members still on the ship were free to come and go as they pleased — an unusual arrangement given the severity of the charges. They used a bicycle to shop for groceries. But mostly they tended to the ship’s generators and other equipment. The Queen Majeda was still loaded with the fuel it never delivered, and they needed to make sure there were no leaks or fire hazards, as they were living with a potentially explosive cargo.
Alkuafi, the captain, had complained via WhatsApp that he and the crew were pawns caught in the middle of a power struggle between competing arms of Libya’s National Oil Corp. “They made me out like I am a mafia guy,” he said. “I could have heaved up anchor and run. If I had something to hide, I would have tried to escape.”
But Alkuafi did heave up anchor, according to prosecutors. He had left the ship one morning in late June and never came back. He hasn’t returned messages since then. “The fuel-subsidy policy as it’s currently applied is a waste of public money and depletion of state resources.”
Khaled Shekshek, head of Libya’s audit bureau, the government’s financial watchdog, was one of the few officials willing to talk about fuel smuggling. He agreed to meet in September at a hotel in Tunis, the seaside capital of neighboring Tunisia, about an hour by air from Tripoli. Clean-shaven and wearing a gray suit, he arrived like a man on a mission, with three aides and a binder of documents he referenced during the interview.
Shekshek, who has headed the audit bureau for the past decade, has been on a campaign to stem the scourge of fuel smuggling. It has been an entrenched problem that has gotten worse since the collapse of Moammar Al Qaddafi’s regime in 2011, which led to an ongoing struggle among rival military factions, warlords and criminal networks.
In 2017, prosecutors in Italy and Malta uncovered an international crime network that smuggled diesel fuel to ships in Malta and eventually on to the European market. The case involved a former Maltese soccer star, an armed Libyan militia, an Italian shipping firm and the mafia, according to Italian prosecutors.
By May 2022, national oil company officials were noticing a pattern of contraband fuel trading from Libya to Turkey but were unable to stop it, according to documents seen by Bloomberg. In a May 10 memo to Libya’s attorney general, then-Chairman Sanalla singled out three vessels, including the Queen Majeda, for illegal fuel shipments and urged the prosecutor to take action.
Libya’s subsidized fuel program, which began under Qaddafi in the late 1970s, has metastasized in the past few years, according to Shekshek’s accounting. It jumped by more than 70% to 62 billion dinars ($12.8 billion) in fiscal 2022 from 36 billion dinars in 2021, he said. That was almost half the national budget, and was on track to be larger in 2023. As much as 40% of that — about $5 billion in 2022 — is being smuggled, according to audit bureau estimates Shekshek shared with Bloomberg.
A Libyan central bank estimate was even higher: It said that the leakage cost the country 30 billion dinars in 2022, or more than $6 billion.
Farhat Bengdara, chairman of the national oil company since July 2022, said in an emailed statement that fuel smuggling is a “huge problem” but that he couldn’t provide an estimate for the scale or value of the theft. He said the company has instructed Brega to install GPS tracking systems to help authorities investigate and has recommended the government reconsider its subsidy program.
Shekshek has called for replacing the subsidies with a lump-sum payment of $1,000 for families to meet their energy needs. “The fuel-subsidy policy as it’s currently applied is a waste of public money and depletion of state resources,” he said. “It spreads crime, inequity in the distribution of resources and undermines democracy.”
In a country with few strong institutions and dominated by militia and tribal allegiances, Shekshek has sought to hold those in power accountable. His audits have led to the suspension or ouster of dozens of officials for corruption, misuse of public funds and governance issues. And he has repeatedly criticized the central bank and the state oil company for their lack of transparency — allegations the bank and the oil company have publicly refuted.
He survived an effort to dismiss him in 2014. In 2017, he called for digitizing the subsidy program as a way of capping expenses. Libyan families would be given a preloaded charge card they could use to purchase fuel at subsidized prices at points of sale throughout the country. Once families used up their monthly allocations, they would be required to buy fuel at market rates. The proposal didn’t go anywhere.
Shekshek said the national oil company has a weak accounting system that’s not in accordance with international standards and doesn’t have a full view of what its subsidiaries are doing. He said Libya continues to import more refined fuel that never reaches the citizens the program was intended to help. And the country has done so even though the economy contracted by 1.2% in 2022, according to the World Bank.
So much fuel is being smuggled, he said, that in some southern and border areas, Libyans stand for hours in long lines to gas up their cars or buy fuel on the black market — at inflated prices. “A large number of citizens and families do not benefit, especially low-income people, which leads to the subsidy program losing its purpose,” Shekshek said. “The real beneficiaries of this subsidy are the owners of companies, factories and luxury cars, which results in an injustice in the distribution of state resources.”
The only activity that accounts for the rise in imports, he said, is the rise in smuggling.
The smuggling can jolt global markets. In January, protests at the Sharara oil field sparked in part by fuel shortages forced the national oil company to shut the facility for three weeks. The closure of the country’s largest oil field, which can produce about 300,000 barrels a day, helped push up crude prices more than 3% that week.
The siphoning of Libyan fuel cost the country about $750 million in 2018, according to then-chairman of the national oil company, Mustafa Sanalla, who didn’t respond to requests for comment. In 2021, when the government refused to allocate more money for subsidized fuel, he implemented a program in which unprocessed Libyan crude could be exchanged for fuel from foreign energy companies. The buyer of the crude would cover any price difference.
The crude-for-fuel swap, which has been used by other countries, made it simpler to procure products without the use of hard currency and the scrutiny of the central bank or other government institutions. It also made it easier for money to go missing. Shekshek found a $9 billion discrepancy between what the government said it spent on the import of hydrocarbons, including fuel for the subsidy program, and the actual expenditure.
“This crucial change in how Libya procures its fuel has facilitated the vast increase in imports,” said the Sentry’s Cater. “This surplus is diverted by illicit Libyan actors who sell the fuel in the black economy inside and outside of Libya.”
Suspicions of Fuel Smuggling
Shipping location data shows that the Queen Majeda stopped mostly in Greek ports prior to 2022. It was in Greece in March and April 2022 before proceeding to Benghazi, arriving there on April 11
The ship broadcast briefly on April 25 and headed to Malta, when it went dark for another three days. That’s enough time to travel to Hurd Bank, a well-known spot for ship-to-ship transfers, according to a UN probe. It returned to Benghazi on April 29
On May 24, the Queen Majeda was detained in Taranto, Italy, where officials discovered 3 million liters of fuel for which there was no documentation. It was allowed to leave on July 8 and went dark again two days later near Sicily
Smugglers capitalize on the price difference between the subsidized fuel and what it fetches on the black market. Though Libya isn’t the only country in the region that offers subsidies, its fuel is so discounted that it makes it a ripe target. Russia’s war with Ukraine has led to an even greater price differential. While Libyans pay just pennies for a liter of gasoline — about 1% of market price — consumers in Europe pay about $2.
The smuggling is costing European countries billions of euros in lost tax revenue, according to Sicpa, a Swiss company that runs a fuel-marking program to identify illicit trading. Italian officials estimate that as much as 20% of fuel used for transport in 2021 came from the black market, mainly through illegal imports that evade about $3 billion a year in taxes.
“This has now become a major corruption issue,” Shekshek said. “It has turned from small-scale smuggling by individuals to organized crime carried out by groups with power and influence using large tankers and trucks.”
In August, an officer at the Zawiya refinery, about 35 miles west of Tripoli, was detained for alleged fuel smuggling. Other administrative and security officials at the plant, which refines oil for domestic consumption, were also being prosecuted at the time, according to Libya’s attorney general. The national oil company didn’t respond to requests for comment about the case.
“It’s clear that the beneficiaries of fuel smuggling have been moving higher and higher up the food chain,” said Tim Eaton, an analyst at Chatham House, a London-based nonprofit that published a 2019 report on fuel diversions at refineries. “Now you have armed groups selling it, and it’s become more and more a transnational crime involving authorities in Libya.”
At a televised meeting in November, Libyan Prime Minister Abdul Hamid Dbeibah accused Brega, which receives imported fuel and delivers it to transport companies for distribution, of contributing to the rise in fuel smuggling by placing big orders for petroleum products. That’s the same company whose name was on the Queen Majeda’s shipping documents. “Brega is to blame,” he said.
Brega Chairman Fouad Ali Bilrahim called the allegation “unfounded.” In an interview with Bloomberg in January, he said Brega gathers, but doesn’t scrutinize, the fuel demands of key government agencies and passes that on for budget approval. Brega also isn’t responsible for transporting fuel once it hands it off to distribution companies. He said there isn’t enough oversight.
“There is no follow-up from any party,“ Bilrahim said. “We are very concerned about fuel smuggling. The situation will get worse in the future unless something is done, but Brega lacks jurisdiction and authority.”
Dbeibah’s office didn’t respond to questions about Brega or the alleged $9 billion accounting discrepancy. Nor did the finance ministry. “It’s clear that the beneficiaries of fuel smuggling have been moving higher and higher up the food chain.”
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