SPECIAL REPORT - How fuel smuggling keeps Gaddafi machine running

ZOKRA, Tunisia Thu Jul 14, 2011 7:56pm IST

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ZOKRA, Tunisia (Reuters)- Yacine, a 24-year old Tunisian in jeans and an oil-stained red T-shirt, has been busy since war broke out next door in Libya.

Yacine is the owner of a corrugated iron shack on the side of the road that cuts through the desert from the Tunisian town of Ben Gardane to the border with Libya.

Every day, hundreds of Libyan vehicles come to the shack, and a dozen others like it clustered in the tiny village of Zokra. There, they fill up with gasoline from jerry-cans Yacine has lined up on the roadside, then head to the Ras Jdir border crossing.

Once on the other side, they are in territory firmly under the control of Libyan leader Muammar Gaddafi. A short distance from the crossing, the cars stop on the side of the road at informal collection points. Using lengths of tubing, they siphon the fuel out of their tanks and into blue and green jerry-cans.

Then, according to a Reuters reporter who witnessed the operation, they head back into Tunisia to collect another tank of gasoline.

"Business is good," said Yacine, who declined to give his family name because his business operates without a licence. Asked where the fuel comes from, he replied: "The gasoline is Algerian, and it's available now."

This is the lifeline that is helping Muammar Gaddafi cling to power in spite of a five-month-old rebellion against his rule, a NATO bombing campaign, and international sanctions.

The areas of Libya under Gaddafi's control are suffering a shortage of fuel. Sanctions make it difficult to import fuel legally and Libya's own refining capacity has been severely curtailed by the conflict.

If supplies get tighter, most analysts say, Gaddafi will no longer be able to hold on. His troops will struggle to travel to the front line to take on the rebels, and the economy will grind to a halt.

But smuggling by networks like the one operated by Yacine and his colleagues bypasses the sanctions and -- combined with fuel from the one operational refinery under Gaddafi's control -- helps keep his government ticking over.

That's a problem for western powers as they try to tighten the noose around Gaddafi. While they can make it extremely difficult for ships to dock in Libyan ports with cargoes of gasoline, they cannot staunch the flow of smuggled fuel.

For that, they need to rely on Tunisia and Algeria, its oil-producing neighbour to the west and source of much of the gasoline smuggled into Libya.

Governments in Tunisia and Algeria say they are not supplying fuel to Libya, and that they are implementing United Nations sanctions.

"We are rigorously enforcing the ... (U.N. resolutions). We have submitted a report on that to the United Nations and we invited the U.N. to monitor our implementation," Algerian Deputy Foreign Minister Abdelkader Messahel told Reuters.

"For us it's food products and pharmaceutical products (which are exported to Libya). All other products we consider are under embargo," he said, including motor fuel.

There is evidence that Algeria is taking a firm line on supplies to Libya. Last week, Algeria's government turned away a Libyan-flagged ship which tried to unload a cargo of gasoline in an Algerian port, probably for trucking overland to Libya, according to a western diplomat.

But stopping the smuggling routes altogether is tricky.

"It's hard to stop trucks from going back and forth," said Firas Abi Ali, the Deputy Head of Middle East and North Africa Forecasting at Exclusive Analysis, a consultancy. "The border with Tunisia is long and porous, making it suitable for smuggling."

TIGHTENING THE NOOSE

There is no fuel embargo on Libya per se, but dealing with specific individuals and organisations linked to Gaddafi is prohibited, so selling fuels to oil firms that may be linked to the Libyan leader carries considerable reputational and legal risks.

Most of the companies trading with Libya before the war stopped in March after sanctions came in. Other firms, lured by hefty premiums for gasoline, have found creative ways of delivering the fuels.

In one scheme unveiled by Reuters in April (link.reuters.com/rak62s),

a ship docked in a Tunisian port loaded gasoline onto a vessel owned by the Libyan government's shipping arm, General National Maritime Transport Company (GNMTC). The firm does not appear on any sanctions list because European countries failed to agree to add it. But it is believed to be controlled by Gaddafi's son Hannibal, who is on a sanctions list.

Now though, even the most brazen of oil traders are running scared of dealing with the Libyan government and GNMTC has resorted to sourcing fuels itself using one of its own vessels, shipping and oil trading sources told Reuters on condition of anonymity.

The Libyan-flagged, GNMTC-owned, tanker Cartagena has been trying to bring a cargo of 30,000 tonnes, or 250,000 barrels, home since mid-May. But it has been prevented by a hardening NATO line on fuel imports and, according to one source monitoring the vessel's movements, a mutinous Libyan captain.

"The captain had sympathies with the rebels and wanted to charter it east (to the rebel stronghold in Benghazi). Gaddafi had wanted to change the whole crew for a Libyan one, but in the end I believe they just changed the captain," said a western diplomatic source who has been tracking the ship.

The tanker loaded gasoline in a Turkish port. The Swiss company that sold the ship the fuel, speaking on condition it not be named because of the sensitivity of the matter, told Reuters the buyer had duped them by placing Tripoli, Lebanon as the destination.

But when it left the port in early May, the vessel sailed west, not east to Lebanon. The actual destination was Zawiyah, a Gaddafi-controlled town and the main oil port adjacent to the Libyan capital.

NATO initially rubber-stamped the deal, saying the gasoline shipment to Libyan distribution company Al Sharara Libya Oil and Gas "does not raise concerns", according to a May 4 fax obtained by Reuters and apparently sent in response to a request for NATO clearance.

But while the Cartagena was en route to Zawiyah, NATO diverted another west-Libya bound fuel tanker on the grounds that the fuel would be used for military purposes.

The Cartagena, carrying enough fuel to fill nearly a million cars, then spent the next month anchored off the Mediterranean island of Malta while the Libyan government tried to come up with another means of unloading it. In early July, it headed for the port of Annaba on the northeastern tip of Algeria, according to AIS Live ship tracking data based on satellite signals sent from the vessel itself.

The plan was to unload the fuel there and transfer it via Tunisia and into Libya through a smuggling network, according to the western diplomatic source.

But Algerian authorities, who had discussed the shipment with European Union authorities, stopped it from berthing.

"It was refused permission to dock. The Algerians were persuaded to stand down," said the source.

The vessel's satellite signals show it did not enter the port as planned on July 2, and instead has lingered about 80 km (50 miles) north in the Mediterranean, posting no new destination port.

"We are working on the assumption that the noose is tightening around Gaddafi, and that we are entering the final stage," said the diplomatic source.

BICYCLES IN DEMAND

Western efforts to choke off fuel to Gaddafi are certainly having an effect in Tripoli. There, long lines of cars waiting to refuel snake several kilometres back from gas stations.

"If I stay in the normal queue it takes me four or five days. I cannot do that," said one Tripoli resident, who spoke on condition of anonymity. "Some people, they stay for more than five days. I know one of my relatives spent about eight days (in a queue)," he said.

The long lines breed anger and frustration that sometimes spills over into violence. "In the gas stations there is lots of fighting, sometimes guns shooting," said the resident.

The shortages have given rise to a flourishing black market, but fuel obtained this way is expensive. One litre of black-market gasoline costs 5 Libyan dinars a litre, or $3.03 at the unofficial exchange rate. That compares to an official price at the pump of 0.15 Libyan dinars per litre.

Ordinary Libyans accustomed to cheap and plentiful fuel are having to learn to eke out their gasoline. Drivers travel with the air conditioning turned off to cut fuel consumption. Some have switched to bicycles and motorcycles.

The problems have eased a little after the government introduced a form of fuel rationing, according to the resident. Motorists now register their vehicle at a gas station and are given an appointed time to collect their ration, usually limited to about 30 litres a week.

"Before there was a lot of tension and there was anger but now things have normalised a little bit because the gas stations have introduced this system," he said.

Once Africa's third biggest oil producer, Libya has long struggled to refine enough fuel to meet domestic requirements. Even in peacetime it relied on imports.

Trade and diplomatic sources told Reuters the Zawiyah refinery -- the only one still operating in Gaddafi-controlled territory -- is producing: they know because they can detect heat coming off it. "It's only about 35 or 40 percent (of normal capacity) but that's not enough," said the western diplomatic source.

A Libyan energy official, who spoke to Reuters on condition he not be identified, said production of diesel and gasoline was running at 3,500 tonnes a day, which he said left the country with a daily shortfall of 1,500 tonnes.

Diesel appears to be more readily available than gasoline. A large part of the trade being done by the illicit sellers in the Tunisian desert is to take diesel from Libyans and swap it for about one third the quantity of gasoline.

The impact of the shortages on Gaddafi's machinery of government is hard to assess because reporters are not allowed to move around freely. Anecdotal evidence suggests it is causing problems.

Foreign journalists and their government minders who were on a trip to Bani Walid, about 170 km southeast of Tripoli, at the end of June had to transfer to another vehicle when their bus ran out of fuel.

"The regime has run out of money, it has run out of fuel," said a spokesman for Mustafa Zarti, a former deputy chief executive of Libya's sovereign wealth fund who broke with Gaddafi's government and is now in Vienna. "It could happen any day but he (Zarti) thinks it won't be more than three weeks until the regime collapses."

LUCRATIVE TRADE

But the fuel smuggled into Libya could also offer Gaddafi a reprieve.

The illegal chain begins at fuel stations in Algerian towns like Tebessa and El Tarf, close to the border with Tunisia. Smugglers buy from the gas stations, then sneak the fuel across the border into Tunisia. It is a frontier that stretches for 965 km, much of it through empty desert.

Algerian media reports describe some smugglers using donkeys to carry contraband across on their backs. They are trained to follow the path without a handler, so if border guards catch them, there is no human to arrest.

Once on the other side of the border, the fuel is sold onto the Tunisian informal market. Transporting it from Tunisia into Libya is straightforward. Over several hours spent at the Ras Jdir border crossing, a Reuters reporter did not see officials check the contents of a single vehicle.

Samir, a Tunisian involved in the trade near the border with Libya, joked: "I hope Algeria doesn't build a pipeline to distribute gasoline to Libya because it will kill the business."

Algeria and Tunisia deny authorising deliveries of fuel to Libya. Algerian customs documents seen by Reuters showed that no fuel was officially exported from Algeria to Libya in the first four months of this year. The same documents also show that officially, no significant volumes of motor fuel were exported to Tunisia in the first five months of 2011.

The senior Libyan energy official in Tripoli said Gaddafi's government had asked Algeria to either provide technical help with increasing production from its refineries, or to sell them 1,500 tonnes of fuel a day.

Asked about that request, an Algerian diplomat cited the international sanctions on Libya. "That is an impossible demand," he told Reuters.

Likewise, an official with the Tunisian industry ministry said there were no legal exports of fuel to Libya.

"Apparently it is all going through clandestinely, with either Libyans or Tunisians who take large quantities across the border far from the eyes of the customs officers," said the official.

There is no suggestion that the authorities in either Algeria or Tunisia are deliberately letting fuel reach Gaddafi-controlled parts of Libya.

But there is evidence that smuggled fuel is reaching the Libyan rebels. Opposition forces are importing fuel by ship into Benghazi to supply their territory in the east, but rebels trapped in the western part of the country are also resorting to smuggling over the Tunisian border, a source working with the rebels in that part of Libya told Reuters.

It is impossible to quantify how much Algerian fuel is going to Tunisia and on to Libya. "There has been an increase in the quantity of fuel transported by smugglers, especially on the eastern border," said one Algerian official who nevertheless dismissed the quantity getting to Libya as "insignificant."

What is clear is that fuel supplies inside Algeria are unusually tight. Oil trading sources said last week that Algeria had bought four gasoline cargoes of between 25,000 and 30,000 tonnes each on the Mediterranean market. Traders said Algeria does not normally need to import gasoline.

An Algerian energy official said 95 percent of the increase in demand was domestic, not smuggling. "The smuggling is a phenomenon which has existed for a long time."

"CAN'T CONTROL THE BORDER"

There are signs that Algeria is taking steps to curb the smuggling. The Algerian diplomat said instructions had gone out to local authorities in border areas to step up monitoring of fuel stations. Another official said customs units on the borders with Tunisia and Libya had been beefed up.

Ultimately, though, there is a limit to what Algeria and Tunisia can do. Large communities in both Algeria and Tunisia depend on the illegal trade for their livelihoods. Authorities in both countries also worry about provoking further unrest in their countries.

"I can't control the border," said one senior Algerian official, speaking privately. "There is illicit trade between all countries. There is illicit trade between France and Luxembourg."

(Lamine Chikhi reported from Zokra, Emma Farge from London and Christian Lowe from Algiers; additional reporting by Tarek Amara in Tunis, Nick Carey in Misrata and Michael Shields in Vienna; Writing by Christian Lowe and Emma Farge; Editing by Claudia Parsons and Simon Robinson)

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