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Probe Uncovers Major Irregularities In Fuel Sector

july11July, 11, 2018: An investigation has found that there is little control over the fuel being imported into the country.

A probe by TOLOnews has found that despite repeated calls for quality control measures and monitoring systems to be enforced in the oil and gas sector, no such systems have yet been established.

The TOLOnews investigation also found that government institutions involved in the purchase and import process lack the necessary information to ensure standards are maintained.

Information collected from land ports across Afghanistan, through which oil and gas is imported, also shows accurate records are not being kept of the amount coming through the borders.

The probe also found that government is losing over 60 percent of the revenue that should be paid to them through so-called petroleum tax exemption practices.

Statistics released by government last year stated over 11 billion AFs was lost to this tax exemption privilege.

For drivers however, security is also an issue.

Ghulam Hussain, 26, is the breadwinner of his 18-member family. He is a driver for an oil company and has transported fuel from Turkmenistan through Aqina port in northern Afghanistan for the past four years. Hussain is paid 15,000 AFs a month and transports fuel around the country.

“Recently one of our colleagues was martyred. There is no security along the roads at night,” he said.

Aqina port is 35kms from the center of Faryab’s Andkhoy district. Sources said that of all the fuel tankers that travel this route, only between 30 and 40 are checked each day once they have paid their taxes.

The rest cross the Afghanistan-Turkmenistan border without following protocol.

Fahim Noorzai, who is head of the quality control center at Aqina Port, says their department is not able to check the quality of all fuel coming in to the country as a lot of the oil falls under the tax exempt category.

“There is one type of fuel which is for Resolute Support; there is another which is exempt from tax and we do not want to deal with it, because it has not been referred to us so we can’t certify its quality,” he said.

The fuel business has been a controversial issue for many years in Afghanistan as there is no legal framework in place to monitor and control imports and quality. As such only a small percentage of the total fuel imported is actually checked.

The fuel business has been a controversial issue for many years in Afghanistan as there is no legal framework in place to monito
Currently, Afghanistan imports large amounts of fuel from Turkmenistan, Iran, Uzbekistan, Kazakhstan, Azerbaijan and Russia.

The fuel mostly comes through Herat, Farah, Nimroz, Faryab and Balkh provinces. However, a large amount of fuel is also smuggled in to the country and this is completely unregulated and unquantifiable, officials have said.

However, government is also not able to accurately state how much fuel is imported legally but it estimates the industry is worth about $4.5 billion annually.

“One would need to conduct a lot of research to find out how many people are licensed to import and sell fuel and how many businesses are in this sector,” said Walid Tamim, the head of the oil and gas regularity authority.

Afghanistan’s oil and gas law, which was approved by parliament and recently implemented following a decree by President Ashraf Ghani, has not changed anything on the ground and stakeholders continue to violate the codes, sources said.

Torghundi port in Herat province is a major border crossing for fuel tankers and some traders say there is more control at this port than at others.

Kudakwashe Chibaya, 35, is a Zimbabwean who carries out quality control processes at Torghundi. He is one of seven foreign nationals employed to help with the control of fuel at six land ports in Afghanistan, in the north and western region.

“We inspect the quality of oil and gas here by using modern technology,” he said.

Using advanced technology to test the fuel is not a problem for the business sector, but critics have said only a small portion of what is actually coming in to the country is being tested.

“The fuel coming in, in the past, was bad quality, but now by the grace of Allah, the quality is much better,” said Ahmad Shah, a representative of an oil company in Torghundi.

“Here in (Torghundi) transparency is much better comparted to other borders,” said Burhanuddin, the owner of a transport company.

“I wish there was accountability in all other ports like there is in Torghundi,” said Mohammad Daud, the owner of an oil company.

There are five provinces in the country that are transport hubs within the fuel sector. Two of these are Farah and Nimroz provinces which border on Iran.

While a lot of fuel is smuggled into Afghanistan from Iran, many legitimate shipments are turned back to Iran from here due to poor quality.

In only the last three years, over 67 million liters of low grade oil and liquid gas has been sent back from the port, while 43 liters of gas and oil was rejected in Farah at the Abu Nasr Farahi port for the same reason.

“From Herat to Nimroz, there are approximately 35 illegal routes which are used to smuggle fuel,” said Ajmal Shakir, the head of the vulnerable corruption assessment (VCA) department.

The inspection of and testing of oil in Afghanistan is the responsibility of a foreign company known as Geo-Chem Middle East.

The company, which is based in India operates in at least 30 countries worldwide and won the contract to test oil and gas coming in to Afghanistan five years ago.

Based on the contract, Geo-Chem is paid $5 for every ton of oil it tests and $4 from every ton of gas. From this money, ten percent of it goes to government’s treasury.

According to Geo-Chem officials in Afghanistan, the company has detected over 115 million liters of oil and 4.5 million kilograms of low quality gas since starting work in the country five years ago.

Najmuddin Sayas, head of Geo-Chem in Afghanistan says that challenges still exist around testing oil and gas coming in to Afghanistan.

“These companies raised concerns about being turned around and would say one trader’s fuel was checked and passed while theirs was not, despite the fuel having been bought from the same supplier. But in reality, there was no truth to these claims,” said Sayas.

TOLOnews also found however that some regions, where fuel was entering the country, were under Taliban control and the control of illegal armed groups including drug smugglers and weapons dealers.

TOLOnews’ investigation also found that many fuel tankers try to cross through Farah’s Qala-e-Kah and Anar Dara districts, on the Iranian border, and head for the volatile districts of Khak-e-Safid and Bala Bolok, also in Farah.

In some cases, the drivers ask illegal armed groups to help them get to other regions in the country – illegally.

Local officials in these provinces have also accused the Taliban of helping to coordinate the transfer of oil and gas illegally and there are rumors that the Taliban has established their own illegal customs points along these smuggling routes and make drivers pay them money. But a Taliban spokesman has rejected these claims.

“There are some deserts which have routes to various regions; there are ways for trucks to use them. The Taliban also escort them and take money from the drivers, because these vehicles avoid going through the customs check points,” said Abdul Basir Salangi, the governor of Farah province.

“A large portion of the low quality oil comes through Farah border,” said Sayas, from Geo-Chem.

While fuel in Afghanistan is considered expensive, government receives only a fraction of the revenue it should get.

Official statistics show that government gets less than 50 percent of the revenue from taxes that it should. For instance, last year, 11 billion AFs in fuel tax was reportedly “lost” and government only collected 9 billion AFs in fuel tax.

Officials have meanwhile said that another big problem is the misuse of the tax exemption clause.

“They (companies and drivers) should provide us with licenses so that we can be sure the tax exemption clause is not being abused,” said Ahmad Rishad Popal, the General Director of Customs.

But, Ajmal Shakir, from the MEC, says: “Based on our information, the quality oil coming in to the country is exchanged with low grade oil in border provinces and then sold on to people.”

Officials have said that currently there are 20 companies with contracts to supply fuel to foreign forces and diplomatic missions in Afghanistan, and that these companies benefit from the tax exemption policy.

The general directorate of customs however claims the number of tax exempt companies has dropped by 30 percent in the past year, but TOLOnews found that last year, 1.1 million tons of oil imported had been exempted from tax, while the previous year, 378,989 tons had been tax free.

“This failure goes back to the existence of large scale corruption and the lack of capacity in government institutions and also the existence of a major mafia network in the oil business in Afghanistan,” said Naser Taimoori, a researcher at Integrity Watch Afghanistan.

In response to a question, Resolute Support said the process of bringing in tax-free fuel is being carried out in line with an agreement between the Afghan government and NATO forces.

In an email to TOLOnews, Resolute Support said the Afghan forces also benefit from the fuel which is supplied to foreign forces.

"Fuel use fluctuates for a variety of reasons, including troop levels. Currently, fuel is used to support three different forces committed to strengthening security and stability in Afghanistan: NATO-led Resolute Support, US Forces-Afghanistan and the Afghan National Defense and Security Forces.

“The Government of the Islamic Republic of Afghanistan has a Status of Forces Agreement with NATO and a Bilateral Security Agreement with the US. These agreements allow contractors to import supplies and materials that are in support of the NATO or US missions without taxation.

“The contractors, who operate with a business license issued by the Government of the Islamic Republic of Afghanistan, are required to supply documentation to the Afghan government verifying the materials they import into Afghanistan … in accordance with the respective agreement(s). However, those contractors that are Afghan legal entities pay corporate profits tax assessed by the Afghan government within the territory of Afghanistan on income received as a contractor. Due to operational security, Resolute Support and US Forces-Afghanistan do not release the names of the contractors who import supplies and materials under these agreements," said RS spokesman Lt. Col. Martin O'Donnell.

Shakir, from the MEC said they have found that some tax exemption certificates have been sold to some companies at Torghundi and other borders crossings.

But, the report also found that institutions involved in the oil and gas sector gave out conflicting information.

According to the oil and gas regularity authority, last year 2.7 million tons of oil was imported in to the country; but the general directorate of customs said only about 1.97 million tons was imported. They said that of this amount, tax was not paid on 1.1 million tons of oil.

Geo-Chem meanwhile said last year the company rejected 54,662,309 liters of oil after inspection, a figure which amounts to 54,000 tons.

“We need to have independent and effective institutions to monitor and control the imports of oil and the necessary guarantees. The government institutions in the past neither had the necessary authority nor the legal framework to undertake the monitoring of the oil sector,” added Taimoori.

While compiling this report, several sources who asked to remain anonymous revealed that major corruption was also ongoing in Afghanistan’s oil and gas sector.

They said that corruption was being carried out in different ways – one was through not paying tax, and among others, the smuggling of fuel into and around the country.

Source: Tolonews


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