One consequence of high oil prices has been a resurgence of the smuggling of oil products such as gasoline, diesel oil and kerosene. 21st Century Business Herald (via Caijing) reports that staff from the Beijing operations of two Swiss-based commodity traders, Kolmar and Glencore, have been investigated in connection with what is said to be China’s largest oil smuggling case in a decade. Li Buhua, a Chinese national in Glencore’s Beijing-based trading team, has been detained by local customs officials, while Dou Shenyuan, manager of Kolmar’s operations in China was also detained. Both men have been released on bail.
Nearly 1 billion yuan ($150 million) of taxes are said to have been evaded in the course of the alleged smuggling of 800,000 tonnes of imported refined oil products, mostly power kerosene, between August and December last year. Power kerosene can be mixed with gas oil to produce a fuel for rural vehicles and generators as an alternative to diesel which is in short supply. The cargoes in question are said to have been imported from Singapore as being for chemical use, a category exempt from fuel consumption tax. Imports of power kerosene surged last year. Reports say the investigation was prompted by complaints from Sinopec, China’s largest oil refiner, following an unusual surge in imports.
One cargo has been acknowledged by Glencore which says it sold 120,000 tons of mixed kerosene and power kerosene to Guangdong Zhenrong Energy ‘free-on-board’ at Singapore, which means its responsibilities ended there. Guangdong Zhenrong Energy took the cargo away in four ships over a period of about two months, Glencore says, adding it doesn’t know why its employee was detained.
Chinese customs officials in Zhuhai, where the cargoes were landed, are said to be involved–at very least they would have had to turn a blind eye to the documentation and any test sampling of the cargoes–so further detentions are likely given the current crackdown on corruption. Nor would we be surprised to hear of more trading companies being connected to this illicit trade, which we are told is also flourishing in Vietnam and the Philippines.