August 22, 2008

Diesel Smuggling Network Alleged

In a series of articles this month, Ciudad Juarez’s Norte daily contended a large-scale, diesel smuggling network was thriving in the border region.

According to reporter Antonio Rebolledo, at least five Mexican and three US companies are involved in the lucrative enterprise. Driving the business is global energy economics: diesel fuel costs about half the price in Mexico than in the US and could be sold for a respectable profit on this side of the border.

While a surge in the number of individual US drivers crossing the Mexican border to fill up their tanks was readily evident earlier this year, Norte was the first media outlet to thoroughly document what is now big business.

Wrote Rebolledo, “In less than three months, small-scale diesel contraband has been converted into an organized, mechanized network of trafficking and transporting Mexican diesel to the US.”

Capping a lengthy investigation, Norte alleged that diesel is transferred from Mexico’s national Pemex oil company to trucks with large, modified fuel tanks and then driven across the border for distribution at five sites in neighboring El Paso, Texas. Reportedly, a video documenting one such operation has been posted on You Tube.

Frontera NorteSur received reports of similar diesel exporting operations in Baja California earlier this year. Most recently, Pemex official Arnulfo Trevino Ramos declared that as much as 5,000 gallons of diesel were detected as being sold in a single transaction during multiple times in Baja California this year. In Mexico’s southern border region, complaints have also surfaced of Mexican diesel diverted to Guatemala.

The trucks allegedly participating in the Ciudad Juarez diesel trafficking scheme belong to companies that service the local maquiladora export industry. Jorge Arturo Sandoval, spokesman for one of the five Mexican companies allegedly involved, OTI, denied his firm was involved in smuggling.

Rebolledo, however, contended that OTI’s fleet alone could be responsible for exporting more than 35,000 gallons of Pemex fuel to the US every week.

Sources cited by Norte said they had been aware of the business for at least two months. According to the newspaper, truck drivers could be making multiple trips across the border every day, using different ports of entry in order to not raise suspicions of customs inspectors. With Pemex diesel purportedly fetching profits between 59 cents and 94 cents per gallon in the US, Rebolledo calculated that each truck could rake in $13,801 each month.

Since an estimated 4,000 trucks cross the Ciudad Juarez-El Paso corridor daily, ample opportunities exist for shipping large amounts of diesel and making money.

Under Mexican and US laws, the business is not specifically illegal.

In a phone interview with Frontera NorteSur before the Norte series was published, US Customs and Border Protection spokesman Rick Lopez said companies and individuals involved in commercial diesel and gasoline exporting must submit the appropriate paperwork and comply with all applicable state and federal laws, including environmental regulations.

Lopez said US customs officials in El Paso had encountered several instances in which individuals were found with 100-gallon fuel containers and then ordered to pay duties.

In Ciudad Juarez, federal and local authorities have announced that drivers who carry excessive amounts of fuel in containers outside their vehicles’ tanks will be sanctioned. On August 14, Ciudad Juarez’s department of ecology and civil protection kicked off inspections of several businesses allegedly tied to diesel exporting rings.

Norte’s reports, however, indicate the diesel traffickers are evading US taxes and possibly violating environmental laws by transferring fuel at makeshift sites in El Paso.

For background, Norte noted two recent court cases in Texas and New Mexico in which several individuals were charged with failing to declare taxes on US diesel shipments made from 1998 to 2004. US federal and state authorities are reportedly looking into Norte’s recent stories.

The sensitivity of the issue was demonstrated August 4 when several Norte reporters were allegedly pursued by unidentified individuals in a high-speed chase through the streets of El Paso after observing a suspected fuel transfer at the Westex Warehouse Inc. property in the Texas border city’s Lower Valley. The reporters’ car was nearly rammed in the pursuit, Norte charged.

In recent months, cross-border diesel diversions have been widely blamed for causing fuel shortages and sowing economic havoc, especially in the states of Baja California and Chihuahua. Farmers in the Juarez Valley have complained of a lack of fuel for their machinery, while maquildora plants have suffered possible multi-million dollar losses stemming from transport delays.

“We’ve detected trucks with full double tanks that cross over to El Paso and discharge their diesel while they are being delivered a second shipment of cargo,” said Walter Centeno Lopez, customs director for the Ciudad Juarez-based Maquiladora Association. “For this reason, (trucks) are delayed as they market the fuel.”

On the other hand, cheaper diesel has encouraged a price-bidding war between border transportation companies in the El Paso-Ciudad Juarez area, with some outfits lowering their daily rates from $80 or $70 to $50 or $60.

In a larger sense, Pemex diesel diversions are politically embarrassing for the Mexican government at a moment when a controversial reform of the state-owned company is under consideration by the Mexican Congress.

Claiming declining oil reserves, the administration of President Felipe Calderon is urging lawmakers to approve measures that will ease the way for private sector participation in drilling for deep-water oil in the Gulf of Mexico. Undoubtedly, much of the new oil would end up consumed in the United States.

Currently, Mexico is the fourth largest supplier of crude oil to the United States, supplying 205.2 million barrels valued at approximately $18.4 billion during the first six months of 2008.

Some find the entire notion of diesel smuggling absurd. Since the Mexican government guarantees a “preferential price” for diesel and gasoline, shipping diesel fuel to the US represents in effect a foreign subsidy for the US trucking industry. Moreover, Mexico actually imports in the neighborhood of 40 percent of its gasoline and more than 14 percent of its diesel, according to federal Energy Secretary Georgina Kessel.

“We sell cheap, buy expensive, sell cheap again, and the damage to the country is very high,” said Tirso Martinez, outgoing president of the National Chamber of Freight Transportation.

“The authorities have to do something to stop the sale of fuel that is benefiting foreigners as in the cases of Guatemala and the United States,”

Martinez said, “because they are taking away a product that costs the country a lot at a lower price than they sell to us. This is ridiculous.”

Jesus Felipe Gonzalez, another official of Martinez’s organization, recently proposed that the Mexican government decree a lower fuel price for its citizens and a higher one for foreigners.

Chihuahua state representative Gerardo Fierro said Norte’s series was “all the evidence” needed to raise the diesel trafficking issue in both the Chihuahua state legislature and the Mexican Congress. Fierro pledged to introduce a resolution soon in the Chihuahua legisaltive body that will demand Pemex disclose its wholesale dealings with diesel distributors.

“It is not just for the Mexican people to subsidize diesel for the big rich people of the country and now the US,” he said.

Apart from any stronger governmental controls in both Mexico and the US, it remains to be seen if the cross-border diesel trade will remain profitable in the days and weeks ahead. Currently, fuel prices are dipping on the US side while going up slightly on the Mexican side.

Reprinted from Frontera NorteSur (FNS): U.S.-Mexico border news Center for Latin American and Border Studies New Mexico State University Las Cruces, New Mexico.

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