Fuel price disparity a lure for smugglers
Wednesday, June 18, 2008
THE decision by Brunei Darussalam to raise petrol and diesel prices for foreign registered vehicles and vessels to ensure Brunei has sufficient stocks of petroleum products seems to have the effect of a double-edged sword. While it will not be worth the while for foreigners to cross the border to buy fuel, the increased disparity in the price for foreign-registered vehicles/vessels as opposed to locally registered ones will make it that much more attractive for fuel smugglers.
The acting director for the Petroleum Unit under the Prime Minister's Office Hj Zolkiflee Hj Abdul Karim who announced the new directive, said it would also limit the number of petrol stations where owners of foreign vehicles/vessels can buy fuel to 10, including two riverine ones. Moreover, the sale of motor gasoline Super 92 and Regular 85 will remain restricted. To strengthen enforcement, Brunei Shell has also directed all petrol station operators to submit a monthly record of sales of gasoline and diesel to owners of vehicles and vessels not registered in Brunei to the company before the 15th of every month. Besides the directives, Bruneians have also been urged to report any suspected fuel smuggling activity to the authorities.
According to Hj Zolkiflee fuel smuggling out of the sultanate had risen to 48 cases up to May, 2008 from 23 in 2006 — an increase of over 100 per cent. The increase in smuggling was when foreign-registered vehicles/vessels had access to fuel at local prices despite the volume restriction. Now with the increase in the price of Premium from 53 cents to $1.18 means a rise of 122.6 per cent for foreigners and diesel from 31 cents to $1.13 means an increase of 264.5 per cent for foreigners. This is the added incentive for fuel smugglers especially when Malaysia had increased prices of diesel and petrol from RM1.58 and RM1.92 to RM2.58 and RM2.70 respectively. With Brunei's raised prices for foreigners it will cost Malaysian drivers RM2.79 per litre of petrol and RM2.67 per litre of diesel in Brunei, slightly more expensive than in Malaysia.
The intention may have been to make it cost as much as in Malaysia but the Brunei dollar has recently appreciated against the Malaysian ringgit. However the lure for smugglers is that it still costs 53 cents for Bruneians, that is, RM1.25 in Malaysian terms.
Smuggling had increased from 23 to 48 cases when it was still RM1.92 for petrol and RM1.58 for diesel in Malaysia and when foreign vehicles still had access to limited fuel at Brunei prices. The increase in the price margin is bound to see at least a proportionate increase in margin financing for smugglers. This is the proverbial vacuum to be filled and nature it is said does not like a vacuum. So what has happened is that while the authorities have made it not worth the while for foreigners to purchase fuel in Brunei, the effect is, it has made it more lucrative for smugglers.
To restrain any impulse to smuggle fuel, the government has made it illegal for locals to carry fuel in excess of the tank capacity. However, what is there to stop someone without scruples from selling the bulk of the fuel in his tank, return near empty and refill at local prices. Such an unscrupulous person could cross the border just once a day or twice depending on fuel tank capacity. As it is the price disparity — one price for locals and a higher one for foreigners — at the pump that is the key attraction for smugglers, wouldn't it be better to have the same price for all at the pump but for the government to come up with an alternative fuel subsidy system only for Bruneian fuel purchasers.
The acting director for the Petroleum Unit under the Prime Minister's Office Hj Zolkiflee Hj Abdul Karim who announced the new directive, said it would also limit the number of petrol stations where owners of foreign vehicles/vessels can buy fuel to 10, including two riverine ones. Moreover, the sale of motor gasoline Super 92 and Regular 85 will remain restricted. To strengthen enforcement, Brunei Shell has also directed all petrol station operators to submit a monthly record of sales of gasoline and diesel to owners of vehicles and vessels not registered in Brunei to the company before the 15th of every month. Besides the directives, Bruneians have also been urged to report any suspected fuel smuggling activity to the authorities.
According to Hj Zolkiflee fuel smuggling out of the sultanate had risen to 48 cases up to May, 2008 from 23 in 2006 — an increase of over 100 per cent. The increase in smuggling was when foreign-registered vehicles/vessels had access to fuel at local prices despite the volume restriction. Now with the increase in the price of Premium from 53 cents to $1.18 means a rise of 122.6 per cent for foreigners and diesel from 31 cents to $1.13 means an increase of 264.5 per cent for foreigners. This is the added incentive for fuel smugglers especially when Malaysia had increased prices of diesel and petrol from RM1.58 and RM1.92 to RM2.58 and RM2.70 respectively. With Brunei's raised prices for foreigners it will cost Malaysian drivers RM2.79 per litre of petrol and RM2.67 per litre of diesel in Brunei, slightly more expensive than in Malaysia.
The intention may have been to make it cost as much as in Malaysia but the Brunei dollar has recently appreciated against the Malaysian ringgit. However the lure for smugglers is that it still costs 53 cents for Bruneians, that is, RM1.25 in Malaysian terms.
Smuggling had increased from 23 to 48 cases when it was still RM1.92 for petrol and RM1.58 for diesel in Malaysia and when foreign vehicles still had access to limited fuel at Brunei prices. The increase in the price margin is bound to see at least a proportionate increase in margin financing for smugglers. This is the proverbial vacuum to be filled and nature it is said does not like a vacuum. So what has happened is that while the authorities have made it not worth the while for foreigners to purchase fuel in Brunei, the effect is, it has made it more lucrative for smugglers.
To restrain any impulse to smuggle fuel, the government has made it illegal for locals to carry fuel in excess of the tank capacity. However, what is there to stop someone without scruples from selling the bulk of the fuel in his tank, return near empty and refill at local prices. Such an unscrupulous person could cross the border just once a day or twice depending on fuel tank capacity. As it is the price disparity — one price for locals and a higher one for foreigners — at the pump that is the key attraction for smugglers, wouldn't it be better to have the same price for all at the pump but for the government to come up with an alternative fuel subsidy system only for Bruneian fuel purchasers.
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