Wednesday 28th Jul 2021
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State trading organization

Amr and the Imaginary Oil Smuggling Ring

Ahmed Amr, the Managing Director of the State Trading Organization (STO), has made several accusations about private oil importers while speaking to a committee at the People’s Majlis last week. He had claimed that such importers dealt in “smuggled” and “low-quality” oil.
Amr mentioned this in response to questions posed to him regarding the practice of private dealers selling oil at prices lower than STO’s subsidised prices.
He did not provide any evidence to back up his accusations.
A deeper understanding of how Maldivian oil importers operate indicates that Amr’s accusations are likely to be groundless.

How Is Oil Imported to the Maldives?

The Maldives imports oil in large seaborne oil tankers. While STO and a local private company own tankers, other companies make use of chartered vessels.
Fuel is purchased from foreign companies, primarily Middle Eastern and East Asian (commonly Singaporean and Malaysian) companies, with whom they have contracts.

Oil suppliers have two main methods of selling their products. One is to load the purchased oil onto the tanker at shore-based oil terminals.
The other way is to sell to their customers while at sea. The oil is carried in massive supertankers called Very Large Crude Carriers (VLCC).

VLCCs carry refined petroleum to market, and sometimes can directly sell oil to other tankers. Such sales on the ocean are necessary as vessels above a given age are not allowed to berth at some ports, and also to save time.

These sales are permitted under international law.

The use of VLCCs by oil suppliers is public knowledge. Software solutions such as Reuters Eikon show that several oil suppliers make use of chartered VLCCs.

For example, Reuters Eikon shows that Vitol, a Dutch company, who operates an oil terminal in Singapore has rented several VLCCS.

At the Majlis Committee meeting, Amr had claimed that oil tankers working for Maldivian companies stopped near Indonesia to have “smuggled oil” loaded.

In reality, what Amr calls “stolen oil” is nothing more than what had been described above. The VLCCs of oil companies that run oil terminals in Singapore tend to operate near Malaysia and Indonesia.

The transponders installed on vessels will give clear and accurate information about the route that the vessel had taken and whether or not another vessel had come close to it. Turning off the transponders is a violation of international maritime law.

If what Amr had said had any weight, any law enforcement agency of the Maldivian government could easily use the transponder data to confirm if Maldivian companies were indeed purchasing stolen oil.

Amr’s definition of “smuggled oil” mainly refers to oil smuggled out from Nigeria and Iraq, and from countries such as Iran that are facing sanctions from the United States and their allies.

All transactions in the oil trade take place through banks, and not with cash. Many companies would be hesitant to trade with such countries and entities, given that their transactions would be routed through the Maldivian financial system and could be scrutinized by local law enforcement and also by American agencies.

If such a company was found out to be dealing in smuggled oil with such countries, the American government would instruct their own banks to cease all dealings with that company. Given that most correspondent banks for Maldivian banks tend to also be American, such a Maldivian company would be banned from all legitimate international trade.

It, therefore, seems unlikely that Amr’s accusations have any weight.

Low Quality Oil

Amr had claimed that the oil being “smuggled” in was of inferior quality. However, this claim also lacks weight.

In order to import oil into the Maldives, companies need to provide a report of the quality of the oil. The quality testing would be conducted by internationally-approved labs. Prior to loading oil, samples from the suppliers’ tanks would be tested. No oil would be loaded before the quality report is released, and the Maldivian authorities would be given the report on arrival.

Amr claimed that the report could be forged. However, Amr failed to mention that verifying the validity of the report by running its serial number by the lab that had conducted the quality testing would only take a few seconds. Less than a minute.

The quality of a sample of oil is measured by its sulphur content. Oil high in sulphur costs less. The best quality is oil that is low in sulphur.

Amr claimed that STO is unable to sell its “high-quality” oil because of private dealers selling “inferior quality” oil. However, this claim is false.

According to S&P Global Platts, a barrel of gas-oil at 0.05% sulphur content sold for $66 USD a barrel on March 23. Likewise, a barrel at 0.25% sulphur content sold for $65.8 USD a barrel. An insignificant difference which does not amount to much.

STO operates the largest oil tanker in the Maldives, the Alimas, at 25 tonnes. The sheer volumes of oil that STO can transport will earn it economies of scale that smaller private companies cannot enjoy; STO can do it cheaper than its competitors.

Amr’s claim that STO cannot compete with its rivals and their selling of “low-quality” fuel also does not hold ground.

Bypassing Customs

Amr had then claimed that the oil was being sold straight off the tankers without going through customs.

However, this statement has no factual basis.

Once an oil tanker enters Maldivian borders, it is boarded by the local military, customs, and Maldives Ports Authority officials.

The tanker would berth under the supervision of the MPL. The cargo would be unloaded into tanks under the supervision of customs officials.

The volume that had been unloaded would be carefully inspected by customs.

Selling oil straight off the boat, bypassing customs, is not as easy as Amr made it seem.

If such an illicit operation would take place, it would have to be coordinated by customs officials and MPL officials and also the military.

Amr’s claims that several government institutions are complicit in such a conspiracy should be, if found to be true, subject to thorough investigation.

Incompetence or Deceit

STO’s inability to compete with small, private oil importers stems either from Managing Director Ahmed Amr’s incompetence or from the possibility that he makes illicit personal gains from the business.

An executive of a private oil-importing company told Dhiyares; the sister-newspaper of The Maldives Journal; that STO’s own business practices prevented it from competing with other companies.

He said that STO does not use its oil tanker, Alihuras, on account of its age exceeding 25 years. STO supposedly claims that they do not use the vessel as the ports of Singapore, Oman, and Dubai prohibit oil tankers that are older than 25 years from entering.

However, exceptions are made on a case-by-case basis.

Instead of working to seek such an exception that would allow Alihuras to enter these ports, STO had decided to charter a foreign vessel in its stead. This hikes up the cost of oil transported to the Maldives.

An experienced local industrialist told Dhiyares, on the condition of anonymity, that the reason for chartering vessels was to take a “cut”; if someone was stealing from the company. If not, he said, Amr was too incompetent to know that there was a better way to running an oil-importing business.

“Smuggled oil” can be purchased off the coast of Somalia from Iranian ships. Buying from such ships is difficult, and local companies cannot reliably depend on such a business model. One or two shipments of smuggled oil as Amr claimed is not impossible, but it is inconceivable that STO’s entire business would suffer from a single shipment of smuggled oil.

STO has been supplying Fenaka and STELCO powerhouses since the Yameen administration. The other markets for STO are fishing vessels, resorts, factory islands, and fuel sheds. It can be said that private dealers succeed where STO fails, at least in selling to resorts, due to STO’s incompetence.

In reality, Amr’s statements to the Majlis committee was not based on fact. If smuggled oil was being imported to the Maldives at the scale that Amr claims, the government would investigate the matter and attempt to put a stop to it.

No such investigation had taken place because no such smuggling had taken place.