Lebanon’s Fuel Cartel…From Smuggling to Corruption.
At a time when Lebanon is facing a historic pile up of financial, economic, social and health crisis, every penny counts for the new government that keeps promising to fight corruption, but is yet to deliver on that.
Lebanon’s bankrupt treasury, which has been losing hundreds of millions of dollars every year from the continued smuggling of fuel oil and fuel derivatives to Syria, can make do with retrieving tens of millions of dollars, which have been siphoned over the past decade via questionable public contracts based on rigged tenders and conciliatory agreements.
A deeper investigation into the fuel smuggling issue had revealed, over the past months, the direct connection between several companies that are related to fuel distribution chains who prefer to sell the fuel derivatives to war-torn Syria for double the price that they’d sell it in Lebanon.
Needless to say both the fuel derivatives and fuel oil are subsidized by the Lebanese government, and smuggling not only puts a strain on the local market that is drying up currently, threatening vital institutions such as hospitals with blackouts, but also depletes the country’s dollar-reserve in favor of a quick lucrative deal in Syria. It has long been suspected that Coral Oil and Liquigaz are the leading Lebanese smugglers of oil and fuel to Syria. As such, both Coral Gas and Liquigas are both said to be under investigation for violations of the latest American sanctions, the Cesar Act. Both Coral and Liquigas would suffer crippling international sanctions once this corruption is exposed.
Lebanon, thus, is deprived of up to half a billion dollars annually, which passes in the form of fuel tankers under the noses of high-ranking officials, whom our sources from local authorities in the Beqaa and in Akkar areas, claim that they are getting a cut from this business.
“Just stand here and you will see the smuggling happening often, there and there,” said Ahmed (not his real name), a local from Hosh Sayyed Ali area in Beqaa, pointing out in two adjacent directions.
The current government headed by Prime Minister Hassan Diab gave the green light to security apparatuses to stop the smuggling to Syria a month ago, and the authorities have managed to show some action, which waned shortly after the second week.
“They are all in on it,” claimed Ahmed.
“Had the smugglers not been paying both local officials, politicians and security members, then the smuggling would not have continued,” he said, adding that to hush the society, the security would carry out one or two successful raids.
But even the sting operation would be rigged.
What is more interesting is that everyone in the area says the same thing, but no one even listens to them when they complain.
This is not the only catastrophe depleting Lebanon’s financial and energy resources. Corruption is a major issue as well.
While smuggling diesel, fuel oil and gasoline to Syria is a major story, which has been extensively covered in the media over the past period, and is expected to grow with the US Cesar Act, targeting those dealing with the Syrian regime and its members, yet this article is about the decadence at public administrations, corruption in the form of fixed tenders, and under the table transactions that were cleverly covered by very high-ranking officials.
Allegedly, rigged public tenders to supply the Lebanese Armed Forces (LAF) and the Internal Security Forces (ISF), as well as other fuel-related conciliatory agreements governing public interests, have cost the treasury tens of millions of dollars on an annual basis for more than 10 years.
Some estimate the total sum of legalized theft through rigged tenders to top $1 billion for that said period.
Two companies’ names surface on such an issue: Medco and Total. They supplied the LAF and ISF with fuel products respectively over the past decade, as well as stored fuel derivatives on behalf of the two military and security entities at their storage facilities throughout Lebanon.
The Army’s annual fuel budget is estimated at 90 billion Lebanese pounds (about $59,5 million). As of 2014, lower international oil prices and a continued fixed fuel budget for LAF, pushed the latter to continue to buy more than its need of fuel, around 80 million liters annually, but that posed a problem: Storage!!
As LAF’s storage capacity dropped, and its inventory nearly doubled to serve for an additional year, it had to turn to the private sector, or so it seemed, as later events proved a major “under the table transaction” that forced LAF to resort to the private sector instead of state’s Directorate of Oil Facilities.
Up until 2018, the army bought green diesel, gasoline and jet fuel through the annual tenders won every year for 10 years by “Medco”, which is quite surprising, but not that much if the real reason behind such streak of wins is known.
Giving the lowest bid at the time, and until the contract was expired by end of 2018, was not the deciding factor as much as the fact that LAF had created a tender book with conditions that only fit Medco, and this included having storage facilities South of the Litani River area, according to our military sources.
“Medco was the only one with storage facilities South of the Litani River area, despite not having the required storage capacity.
Military sources revealed that in the case of Medco, the army’s strict tender book “seemed reasonable at the time” given the fact that the Lebanese Army had spread in the area south of the Litani River for the first time following the 2006 Israeli aggression on Lebanon.
But, “what certain Army officials usually did, before the army relied on its own receive green diesel from the oil facilities directly rather than through a third party, they would carve out a tender book that would fit Medco’s profile,” said the sources.
The sources refrained from naming the said Army officials, but estimated that the bribes paid were in the millions of dollars over the years.
Medco, as per the tender book, was also required to store the army’s extra amounts of fuel derivatives at its facilities across Lebanon, but it had actually lied about its real storage capacity, which was much lower than expected. Yet, it continued to charge the LAF for the total amount of storage agreed upon despite the fact that that amount was not physically there.
The prices were also higher, but the contract continued to be awarded to Medco year after year, and all of this was exposed in 2016.
Between 2016 and 2019, and after having bought red diesel from the Directorate of Oil Facilities, (which had its own monopoly over red diesel), the LAF was required to turn to the eco-friendly green diesel, which Medco had supplied it with for years.
By January 2019, the Lebanese army signed a contract with the Directorate of Oil Facilities to purchase green diesel instead of contracting that to the private company that had been committed to supplying green diesel to it for more than ten years.
According to an obtained official document, the Directorate of Oil Facilities had, not only much lower prices for the green diesel as compared to the prices which Medco used to sell LAF, but they also had lower prices for storage facilities, something which Medco was also overcharging for storage that did not even exist.
This new contract saved the LAF up to $2 million dollars from its annual fuel bill, and between 2018–2019 LAF managed to reduce the cost of the fuel bill by 20%, as a result of its decision to stop dealing with a private company in importing fuels.
This motivated the army’s leadership to enter into negotiations with the Directorate of Oil Facilities in order to contract it with “the supply of gasoline as well; knowing that the army’s consumption of diesel reaches 15,000 tons annually and its consumption of gasoline reaches 45,000 tons, and the new contract, had it materialized, would have allowed the army to save up to at least three times the amount of money it was paying the private sector (Medco),” according to the military sources.
But, despite this huge saving on the gasoline bill, and according to the same military sources, the army did not go through with the contract with the with the Directorate of Oil Facilities to be supplied with gasoline.
Medco remains the supplier, no one why, and for prices that are higher than those of the state’s Directorate of Oil Facilities.
Once the LAF discovered that it was cheated for more than a decade, and that there were huge gaps in past tender books in a way that facilitated the win of Medco and eliminated its competition, it opened an investigation into the matter. But that too was rigged according to military sources.
“The matter had been ongoing for years, and no one said anything. It continues to be the case with Medco selling gasoline to LAF to date. The only time this was brought up few years back (2016–2018), a pretend investigation was carried out and nothing was done, because, as expected, they found no corruption. Higher ranking officers stood behind it,” the military sources added.
According to Medco, there’s nothing wrong with past or current contracts with LAF, especially that the storage cost is lower simply because the state has the ability “to sell at cost price, and open letters of credit,” both which private companies cannot compete with.
Further investigation into the matter hit a brick wall as the military institution would not comment officially on the the actual price difference, nor the size of massive sums that were siphoned by Medco from serving the army throughout the years, something which is both common and expected when handling such case where all relevant parties are involved in the same corrupt transaction.
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