Richard Curran: The dirty business of washed diesel

September 04 2013 04:02 AM

IMAGINE running a small business during tough times. You do everything by the book, pay your taxes and try to survive. Yet you have to club together with some of your local competitors in a campaign to publicly show that what you are selling is a legal, legitimately sourced product.

This is what a group of around 15 petrol station owners in Co Louth had to do in an effort to combat the rampant use of illegally laundered diesel. The sale of washed diesel is so widespread in the area that a group of garage owners began a campaign built on transparency and a voluntary code of testing to show potential customers they are among those acting within the law.

Motorists don't know what they are buying. The campaign is about assuring them of what is on sale in those 15 garages.

It is an appalling indictment of the level of criminality and the ineffectiveness of the authorities in tackling diesel laundering that petrol station owners have had to do this.

Basically, criminal gangs, operating mainly along the Border, are buying subsidised agricultural or industrial diesel, rinsing acid through it to take out its green colour, and selling it to petrol stations.

Petrol retailers can buy it more cheaply and sell it more cheaply, thereby making bigger profits. It drives legitimate garages out of business and wrecks motorists' engines, while the gangs are making millions.

It has been a problem for years, but it really mushroomed when a new directive was introduced under the last Fianna Fail/Green Party government.

"Marked" or coloured diesel used to contain a higher level of sulphur than ordinary motorist diesel. This meant it was more easily detected. When the sulphur content of green diesel was reduced in 2011, the only way of distinguishing between ordinary legitimate road diesel and washed diesel was through lengthy, expensive laboratory tests.

The problem is so widespread that estimates suggest as much as 12pc of all diesel on the road is washed. It is believed to cost the Exchequer between €150m and €200m in lost revenue every year.

In a country that is so broke it proposed cutting the disability pension, this is a lot of money.

County councils foot the bill for taking away the waste sludge usually dumped at the side of the road by criminal gangs.

Under safety protocols, every time a large container of the toxic sludge is found, officials from the country council, the fire brigade, the customs and excise office and the gardai are required on site.

The toxic waste is then removed and exported to Germany to be made safe and dumped. These clean-ups cost Louth County Council €1m in 2011.

This is not simply a Border problem. It is a national problem. A variety of local politicians have spoken in the Dail and Seanad about it and said truckloads of washed diesel are delivered all the way into Munster and Connacht.

Earlier this year the first diesel washing facility in Dublin was uncovered in Blanchardstown, capable of laundering over 2.5 million litres of fuel per year with a potential loss to the Exchequer of €1.75m.

The whole scam involves the transfer of €150m per year, that should be available to all four million citizens, to just a couple of hundred criminals. One truckload is worth over €20,000 to the criminal.

There is no doubt that the gardai, Revenue and their counterparts across the Border have upped their game in uncovering these plants with numerous big finds. However, garages caught selling the stuff often open up again 24 hours later.

Revenue has also introduced monthly online VAT returns for garages and fuel-sale tracking to help combat it. Unfortunately, this just adds to the administrative burden of garages trying to make an honest living.

What is the solution? Farmers receive a fuel subsidy of over €500m per year to help their businesses. The subsidy is instantly available at the diesel pump by purchasing cheaper green diesel.

One solution is to switch farming and other industries over to a tax rebate system, similar to many countries across Europe. It is already used in the fishing sector here.

You basically do away with green diesel. Everyone pays the same price but registered subsidised businesses, like farmers, claim back a rebate.

Such a move would close down illegal laundering facilities overnight. But there are problems.

Farming interests say it would affect the cashflow of their businesses and that it would be an additional administrative burden on them.

They also argue it would lead to large quantities of diesel being stored on their farms, which would be a security risk. Unless the same scheme was introduced north of the Border at the same time, launderers could just use UK-subsidised red diesel.

Finance Minister Michael Noonan told the Dail earlier this year that a rebate system would be expensive to run and would also be open to abuse.

Farmers could also legitimately question why they should switch to something more complicated because of criminality. Why not just get the gardai to fix the problem? Unfortunately, this problem is proving very difficult to fix from a law and order point of view. As for inconveniencing the farmers, surely it would be a better system because they would have to become registered users of a subsidised product.

Mr Noonan told the Dail during the summer that he was not going to change the existing scheme. Instead, he supports the current strategy.

In the meantime, a joint memorandum of understanding signed with the British revenue (HMRC) signs us up to a joint approach to finding a solution. At the moment that appears to simply involve finding a better dye or "marker" for the diesel – one that is harder to wash out.

It doesn't sound very convincing.

Read Richard Curran's column every Thursday in 'Business Week' – free with your Irish Independent