A Public Eye Investigation | September 2016 11
this report looks at the intercontinental trade in fuels. It shows how industry profits from these double standards. It also shows how industry operates under the radar screen of public attention, profiting from the deliberate and illegitimate producing and supply of dirty fuels at the expense of people’s health. This report highlights the responsibility of an industry, whose managers live in places such as Geneva or Amsterdam. Sulphur isn’t a problem in these cities any more. But it is still a lucrative business.
1.2 – AN ILLEGITIMATE BUSINESS MODEL THAT MUST BE CALLED TO ACCOUNT Two entirely different developments triggered Public Eye to look closer at the business of African fuels. First, in 2006, Trafigura dumped toxic waste in Côte d’Ivoire. The waste had been created in an improvised refining operation aboard a tanker chartered by the Swiss-based trading company. Just like everybody else who examined this enormous scandal, we focused initially on the waste, which caused a catastrophe of environmental health. But then we asked ourselves: Why was Trafigura improvising a refining operation aboard a tanker? We now know that the company was processing a very highly sulphurous intermediate product to be blended into the gasoline it was producing. This high sulphur gasoline could never have been sold at a pump in Europe, but it was good enough for the African market. Then, in about 2010, Swiss oil trading companies began to buy networks of petrol stations across Africa. Switzerland is home to the biggest commodity trading hub with a global market share of 25 percent for all commodities and of 35 percent for crude oil and petroleum products.6 Traditionally acting as an intermediary between buyer and seller, trading companies are expanding along the supply chain right down to the end-consumers. Giants such as Vitol and Trafigura have become the biggest shareholders in companies owning more than 2,200 retail points across the continent. And the African fuel business is incredibly dynamic. “In Africa we have 660 retail stations, and I can tell you that those statistics are typically valid only for a week”, says Christopher Zyde, Chief Operations Officer of Puma Energy, Trafigura’s downstream arm.7 Again, we had questions. Why would trading companies decide to invest in such a highrisk, low-margin activity? Why were they so keen to buy petrol stations, especially in Africa? These two elements prompted a further line of questioning, core to this report: what if there was a profitable business model that exploited weak fuel standards in Africa by dumping cheap intermediate products from refineries, the chemical industry, and elsewhere, into gasoline and diesel for sale in Africa? 1.2.1 – DIVING DEEP INTO THE MECHANICS OF AN OPAQUE INDUSTRY
We began our research more than 3 years ago to see whether our suspicions were valid. We had to start from zero. Even the most basic data was not available. One researcher with long experience in the global oil and gas markets told us: “This is one of the
most opaque sectors I’ve ever had to deal with.” This statement may be indisputable, but it should also be surprising, because the downstream sector is a key economic and commercial sector. Ensuring a constant supply of petroleum products, such as gasoline and diesel, via infrastructure such as storage tanks or pipelines, is of vital significance to all economies and a matter of national security for governments around the world. In Ghana, for example, the downstream sector accounts for more than 10 percent of GDP. Often subsidised, fuel prices are a constant and controversial subject of public debate in many African countries. Despite this opacity, we gathered a minimal amount of information from official statistics, trade authorities, and the companies themselves in their annual reports and bond prospec tuses for potential investors. We talked to dozens of industry insiders, supervisors, port personnel and even the crews of ocean-going tankers. When we were able to talk with industry sources, they generally agreed to share their insights on condition of anonymity. Where statistics were lacking or incomplete, we found that tracking individual tankers was a useful way to understand the flows and patterns of trade. We also visited several African countries to speak with authorities, regulators, and civil society organisations. But our first challenge was to test the assumption that the levels of sulphur in fuels on sale in Africa were as dirty as the standards allowed them to be (and hence the double standard). That is, we had to test the quality of these fuels. And here, we had to make some choices. We couldn’t sample the gasoline and diesel sold in every country nor could we analyse the fuels sold by all the retail companies in a country that we visited. These tests are expensive and they require the services of specialized logistics support to transport the samples and an accredited laboratory to test them. As a Swiss corporate watchdog, we focus on Swiss-based trading companies. This is not an arbitrary choice, however. These actors dominate the fuel business in many African countries. We do think, though, that other companies outside the focus of our study, such as the oil majors and state-owned companies, would also be worth a closer look. We used two criteria in deciding where and what to sample. We singled out the countries that have both weak sulphur standards and petrol stations owned, partly-owned or supplied by Swiss trading companies. Samples from eight countries were analysed: Angola, Benin, the Republic of the Congo, Ghana, Côte d’Ivoire, Mali, Senegal and Zambia. For other parts of the report we also looked at Nigeria, Sierra Leone, Tanzania, Togo, and Zimbabwe. With the assistance of a renowned independent laboratory, we analysed the sulphur content as well as other health-damaging substances that can be regularly found in gasoline and diesel sold at African pumps. None of the fuels sampled were even close to the qualities of fuel being sold in Europe. A large majority of the diesel samples contained sulphur levels several hundred times higher than any authorized limit found anywhere between Lisbon and Warsaw. The results from our fuel tests are even more shocking when one considers that Africa, especially West Africa, supplies the world with some of the best quality, low sulphur, “sweet”, crude oil. Nigerian Bonny Light, for example, has one of the lowest