Author: authentix

Authentix works with governments to ensure authentic products are sold in-country to benefit law-abiding citizens – not criminals. Fuel marking solutions enable governments to collect more excise taxes without raising taxes for the benefit of citizens and legitimate industries. Prior engagements include a program for Malaysia from 2006 to 2011 that we want to present so that decisions are based upon technical and operational facts about the program.

In 2005, the Malaysian government was spending $3 billion on fuel subsidies and made the decision to look for a way to combat the sale of subsidized diesel to industry, mainly manufacturing, construction and agriculture. The government sought a fuel marking program to mark subsidized diesel across the country with sampling and testing done at various industrial locations.

A local Malaysian company, Teras Kimia (TK), was awarded the five-year contract and used Authentix fuel markers, test kits and analyzers. After an initial trial period, the program kicked off nationally in September 2006.

In the initial three months of the program, the government’s enforcement team identified 39 publicly-listed, large companies using subsidized diesel, and charged two companies in court. In 2010, the Domestic Trade, Cooperatives and Consumerism Minister (MDTCC) reported that since the program started in 2006, 594 cases were filed with 6.86 million liters of fuel seized, preventing the loss of approximately US$900 million in subsidies annually.

Marking the subsidized diesel fuel was effective throughout the five year program. In June 2011, the last year of the program, there was an attempt to steal subsidized fuel with reports citing evidence collected from the fuel marking program being used in the process of making arrests.

The news article covering these arrests can be read here.

The possibility of laundering the class of marker that was being used in Malaysia became an issue in early 2008. In response, TK / Authentix added a second marker to the fuel to address these laundering issues. A problem arose with the second marker in that over time the marker would leave deposits in the truck tanks that would color and partially mark any fuel that was place in the tanker. When made aware of the issue, Authentix quickly adjusted the formulation of the marker and the issue was resolved to the satisfaction of the Malaysian government.

Though the media brought some attention to the launderability issue, it did not prove to be as significant as the press made it out to be. In March 2010, there was a raid and arrest of several criminals caught in the act of trying to launder the marker from the subsidized fuel. Even after being treated in the criminal’s ‘neutralizing machine’, the marker was still detectable in the fuel. Additionally, the change in the concentration of the marker could be used as evidence of attempted laundering.

The news article covering attempted laundering can be read here.

In late 2009 some negative articles appeared on the Internet without bylines and using unnamed sources, which questioned if the Malaysian fuel marking program was worth the cost.

These articles were incorrectly pointing to the 81% reduction in illicit fuel seizures since the inception of the program as a negative. The author of these articles failed to recognize that when fuel marking programs are successful there is less subsidy abuse and therefore there are fewer police raids and less illicit fuel seized.

A reputable media outlet ran a balanced story in November 2009 that outlined the overall situation and included quotes from former and current oil ministers that the program was effective. This same organization also ran a second article the following day allowing the leaders of TK to rebut the negative arguments.

The program continued for several months after the end of the contracted five-year and came to a full stop in October 2011.

The balanced story quoting government officials can be read here.

In 2014, there have been several articles in the media about reinstating the Malaysian fuel marking program. One includes an un-named government official from the Anti-Corruption Commission who is urging the government to take action, but oil ministry officials say there is no budget for such a program.

Malaysian Program Timeline

Date	Item
2005
Teras Kimia (TK) is tapped to pilot a fuel marking program in Malaysia by the MDTCC. TK selects Authentix fuel marking solutions for the pilot.
September	Pilot program starts
2006
April	Based on success of solution and program, TK is awarded a five year contract
October	Program in operation nation-wide
2007
Various media reports on the effectiveness of the program
2008
January	Two companies, including their Directors plead not guilty to diverting subsidized fuel and are tried.
2009
September	Articles questioning the value of the program are published
2010
April	Article published quoting the Domestic Trade, Cooperatives and Consumerism Minister (MDTCC) on the effectiveness of the program
2011
March	Program contract officially expires but continues while contract extension is discussed.
October	TK / Authentix stops the fuel marking program – no new contract is let

Authentix thrives in supply and distribution chain complexity, providing innovative authentication solutions that help you effectively mitigate risks to promote revenue growth and competitive advantage. As the authority in authentication since 1998, Authentix’s extensive, proven experience in public and private sector authentication solutions ensures the programs implemented for our customers are comprehensive, technologically advanced and professionally executed.

Prior engagements include a program for India from 2005 to 2008 that we want to present so that decisions are based upon technical and operational facts about the program. In 2005, the Indian Oil Ministry (IOM) embarked on putting a fuel marking program in place to combat the illicit practice of using subsidized kerosene to dilute taxed vehicle fuel across the country.

An Indian news story about the initiative can be seen here.

Criminals would divert or steal kerosene that was being subsidized by the government to benefit the poor, and use the lower cost kerosene to adulterate diesel fuel, costing the government millions in abused subsidies and evaded fuel taxes.

Five companies competed against the challenging capability, scope and experience requirements that the Indian government set forth to address the problem.

• Authentix was the only contender that could detect 1% kerosene in gasoline or diesel.
• Authentix was also the only company with a solution that met the operational requirements to be able to rapidly and economically inspect, audit and reconcile 34,000 retail outlets and terminals.
• Authentix and our operations partner, Societe Generale de Surveillance also met the requirements of frequent reporting to the Oil Marketing Companies (OMCs) and had experience executing similar programs and reporting in equally challenging environments.

The program identified over 1,000 retail outlets that were selling road fuel adulterated with kerosene – 543 in the first year alone. Word of inspections and prosecution spread quickly and for every site identified there were likely many more that stopped adulterating out of fear of getting caught.

The original contract was for a one-year trial, starting in October 2006, and based on the positive results was extended multiple times, the last extension expiring December 2008.

During the 27 months of the engagement, groups that were being disadvantaged by the fuel marking were continually raising issues to try and stop the program. One of these issues was the potential for laundering, or removing the fuel marker through industrial filtering processes. The IOM set up a committee to look into the issue but found no evidence of wide-spread laundering in the country. Even so, because the issue had been elevated by multiple competitors, the IOM chose to consider different marker technologies at the next contract renewal.

Separately, in 2008 two employees of Hindustan Petroleum Company Limited (HPCL) made a formal complaint to the Central Bureau of Investigation (CBI) in India about irregularities in the fuel marking program. These employees requested but were denied whistleblower status by the Chief Vigilance Commissioner. A short time thereafter, both employees were dismissed under allegations of misconduct. The CBI investigated the allegations and found no evidence to support the claims and the inquiry was closed.

One HPCL ex-employee took his story to the media, which ran video and text stories without doing any fact checking with either the IOM or Authentix. This gentleman has since become a self-styled activist which has led to other items by and about him on the Internet.

Subsequently in 2010, the IOM issued a tender for a new fuel marking program and multiple companies submitted proposals. Authentix responded with a layered marker and analyzer technology that addressed the issue of launderability. Another set of rigorous tests were conducted, but no contract was awarded.

India Program Timeline

Date	Item
2005
June	Petroleum Planning Analysis Cell of the Ministry of Petroleum and Natural Gas forms a committee to evaluate and trial adulterant marking systems to reduce the illegal diversion of kerosene from the Public Distribution System supply that is intended for the poor in India.
September	Authentix and its partner, SGS, are selected for the kerosene adulterant marking program.
2006
October	Authentix / SGS implemented the program across India at 319 terminals and 34,000 retail outlets.
2007
October	Program extended through March 2008
2008
April	Program extended through September 2008
May	Complaint about how the marker program contract was let & how it is being operated are made to the CBI
August	New tender for marking system is released by the IOM
October	Program extended to 31 December
2009
January	Program contract with Authentix / SGS expires
August	CBI inquiry is closed
2010
June	New marking program RFP released by IOM
July	Authentix response to RFP submitted
December	Authentix layered solution tested by several technologists from the OMCs R&D departments
2011
	No contract for a new marking program is let