Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 23 - 39)

WEDNESDAY 17 MARCH 1999

MR DAVID MAXWELL, MR RAY HOLLOWAY, MR NOEL SMYTH, MR PETER BARLOW, MR SEAMUS MURPHY and MR THOMAS PALMER



Chairman

  23.  Mr Maxwell, we are very grateful to you and your colleagues for coming. We have the advantage of knowing who you are and we obviously have nameplates on the table but if you wish to introduce your colleagues in a moment that would be very welcome. Because you were in the room, you will have heard the remarks which I made to the earlier witnesses but I will repeat them. First, if there is anything you would like to say before we take evidence, please feel free to do so. Second, not necessarily all of us will ask you questions and the questions may come from different quarters of the room. If at any stage you want to gloss any answer you have given, either at the time or in writing afterwards, please do not hesitate to do so. We will feel free to follow up with any written questions which we feel we failed to ask at the time. We are appreciative of your coming. I will pass the ball briefly back to you before asking my colleagues to ask questions.
  (Mr Maxwell)  We wish to thank the Committee today for inviting us along to provide evidence into the illegal sale of fuel oils in what has been a very difficult time for petrol retailers throughout the Province. My name is David Maxwell. I am President of the United Kingdom Petrol Retailers' Association and also a retailer back in Northern Ireland. At this point I will take the opportunity of introducing my colleagues. On my right is Ray Holloway, Director of the Petrol Retailers' Association. On my extreme right is Thomas Palmer, who has just recently been appointed the Chairman of the Petrol Retailers' Association back in Northern Ireland and also is a retailer. On my immediate left is Seamus Murphy, who is the Deputy Chairman of the Petrol Retailers' Association in Northern Ireland and also a retailer with a site close to the border. On my extreme left is Noel Smyth, the Regional Manager of the Retail Motor Industry Federation in Northern Ireland. Can I say just a few words about the Petrol Retailers' Association and who we are? It is a major trade association within the Retail Motor Industry Federation. The Association represents the interests of 3,000 forecourt retailers throughout the United Kingdom and the forecourt retailers are independent of the motor fuel supplier. The Retail Motor Industry Federation serves and represents businesses concerned with all aspects of the retail motor fuel industry products and services. Its aims are to assist and provide members with the highest standards of operation for the mutual benefit of themselves and their customers. The problem in Northern Ireland with reference to smuggling has become enormous since the Budget. It has been a very difficult time since duty levels were increased. If we look at the recent figures that we have, there has been a market decline by a third since 1994, and overall the United Kingdom market has declined in that time by probably about a rate of six per cent.

Mr Beggs

  24.  You report in your memorandum that Customs were aware of evidence of around 25 million litres of smuggled fuel in 1998, about 20,000 tonnes. In 1997, some 466,000 tonnes of petrol and 338,000 tonnes of diesel were supplied in Northern Ireland. What do you assess to be the extent of penetration of the retail market in Northern Ireland by, first of all, smuggled petrol and, secondly, smuggled diesel? Are Customs just seeing the tip of the iceberg or is the problem being seriously overstated?
  (Mr Holloway)  It is very difficult to know precisely what the penetration of smuggled product is because unfortunately the market is not obliged to report the movement of refined products. The way the duty is paid is by the refiners at the point of production. There is no refinery in the north of Ireland; therefore there is no actual figure to attach to the Province. When you therefore produce the product elsewhere and move it to Northern Ireland, you are not obliged to report the movement. The closest we can get is to use figures which have been provided by the Institute of Petroleum. David referred earlier to the fact that the total market has declined broadly by about a third since 1994 and that is based on statistics provided by the Institute of Petroleum. I am very happy to provide those to the Committee. In terms of the effect diesel has against petrol, there is no doubt that the market for smuggled fuel appeared first, as I heard referred to in the last session, in the diesel area. It was because of the opportunity to take the product and contaminate or change the product to sell it for greater gain. The other thing is that the transportation regulations that govern the movement of diesel and petrol are very substantially different. It is indeed much easier to move diesel or gas oil across the border than petrol. However, in a recent meeting with Customs and Excise in Northern Ireland, they admitted for the first time that product being seized was now showing that petrol was the greater part of the two. In terms of tracking the problem, it is very evident from the figures that I will happily give you that the issue began to escalate following the 18 March 1998 Budget when we saw an 11 per cent increase in diesel and around five per cent in petrol. From that time on, there is very clear evidence that the legal trade in those products declined in the Province, and indeed Customs and Excise began to seize greater quantities of diesel which they believed came from the south. It would be true to say that, after last week's increase, we can only expect that those who are the opportunists in this will again seize the advantage of a further 11 per cent change in the value of diesel and four and a half or five per cent on petrol to again increase the trade in smuggled product.

Chairman

  25.  When you said the meeting with Customs and Excise had been recent, that being a somewhat elastic word, how recent is recent?
  (Mr Holloway)  One week last Friday.

Chairman:  I would call that recent.

Mr Donaldson

  26.  What form does illegal diesel fuel normally take and is there a significant smuggling of road diesel, duty paid in the Republic of Ireland?
  (Mr Holloway)  If I correctly understand that, we are trying to get a balance here between the product that may well be agricultural diesel and already in the Province as against that which is prepared in the South. The benefit, again as I heard referred to in the past session, was that there is a greater profit to be taken if diesel is both diluted by adding kerosene and indeed having the marker dye removed than by smuggling transport diesel from the south. There is a considerable difference in the profit to the individuals concerned in that trade and it is approximately double. The benefit of taking green or agricultural diesel, as it is known, and taking away the marker which would give the game away would bring about a 50p per litre profit potentially as against almost 26p if we take the value of the smuggled product coming south to north. Because of the figures that we so desperately would like to have but do not have accurate figures for, it is impossible to say.

  27.  Your assessment would be that the mark-up, if you like, is about 50 per cent?
  (Mr Holloway)  Yes. Because of the quantities that we are talking about and the overall distortion of the market, you have to assume that much of the product is coming from the south and therefore is wholly duty unpaid when it is resold in the North. If we were seeing movement between markets, that would be evident to most of the players in the market in the north of Ireland.

  28.  Staying with the question of smuggling from the Republic of Ireland, what is the view of your Association in terms of the extent of involvement of paramilitary groups? We have heard anecdotal evidence that there is evidence of involvement, but do you have any clear evidence of the involvement of paramilitary organisations in the smuggling of fuel oil from the Republic of Ireland to Northern Ireland?
  (Mr Maxwell)  No. Anything we have is anecdotal evidence. I know there is a lot of speculation but we prefer to deal with facts. That is not to say that we do not have a view and certainly there is a lot of speculation that there is an involvement.

  29.  If you have not got specific evidence that it is paramilitaries, is there evidence to suggest that it is organised in the sense that it is not just individuals here and there? Are there syndicates operating here?
  (Mr Holloway)  If we look at the scale of the problem and the funding that would be necessary in order to move the quantities that we believe are being smuggled, clearly you begin to see that those who are involved have substantial funding available.

  30.  That would suggest organised smuggling. There are groups, whatever the nature or character of those groups, involved in this smuggling that have access to significant funding and have a network of distribution in place in Northern Ireland?
  (Mr Holloway)  Yes.

Mr Hunter

  31.  I would like to clarify one point on the mechanics of exporting from the Republic of Ireland to Northern Ireland which I have not quite grasped. The exporter in the Republic will receive his supply. He will not pay duty on it in the Republic because it is for export. Is there any channel of communication between Excise in the Republic and United Kingdom Customs in Northern Ireland or is the onus entirely on the exporter to declare?
  (Mr Murphy)  He will pay the duty on it in the South but the duty in the South is a lot less than the duty in Northern Ireland. It is because of the duty differential that he can pay his duty in the South, buy it in the punt, the Republic of Ireland currency, take it into Northern Ireland and sell it for sterling, thereby making a bigger profit. He will still pay his duty to the Southern Irish Government. His duty differential is about 20p per litre.

  32.  Therefore, there is no need for the Excise authorities in the Republic to communicate?
  (Mr Murphy)  No.

  33.  As far as the suppliers are concerned, this is a neutral exercise. I imagine there is an increase in demand in Northern Ireland compensated by increased supplies going to the Republic but how is this traffic from south to north affecting the major parts of the retail side?
  (Mr Murphy)  I have a station in Newry, six miles from the border. I have lost 10,000 gallons a week trickling through my station. That is significant. It is down almost 50 per cent. That is a loss in revenue to the Exchequer of this country of almost £1.5 million a year. That is just on one site.

  34.  You have reason to believe that that is not out of the ordinary for other stations?
  (Mr Murphy)  Not in the Newry area. As you move further away from the border regions, it would probably become less.
  (Mr Maxwell)  We have been able to collect some information from our members. In many cases, the figure is as high as 60 per cent. That in itself certainly highlights the real problem.
  (Mr Holloway)  May I go back to something Mr Hunter asked regarding product moving from the South to the North? Product is being purchased in the South as if it is to be resold in the South so it is a legitimate purchase. They will pay the duty and they will pay the VAT. If it was being purchased for export, it would not technically be smuggled product because where they would run into a risk would be if they did not have a bonding arrangement with Customs and Excise for the transfer of the product into a different duty level. It is legitimately purchased product that we are talking about for resale in the south that is being moved North.

Mr Barnes

  35.  How easy is it to audit whether a filling station is selling fuel which is of dubious origin? Should it not be easier in a case where there is a legitimate contractor, a major supplier involved so that there could be a tallying of deliveries, pump readings and financial data, etcetera, in order to check what it is that is going on?
  (Mr Holloway)  The answer, in theory, is yes because standard VAT inspection actually matches purchases with sales, but that is provided of course that the purchase and the sale has been recorded.

  36.  So do you have any indications as to what actually occurs, as to whether these things are not checked out? Is it the case that there is maybe fraud taking place, so there is falsified information which is being provided?
  (Mr Holloway)  I think the issue surrounds a visit of the VAT inspector and his ability to immediately spot whether invoicing is actually legitimate. As we have said already, there is actually quite a creative way of disguising the legality or source of the product that is actually being stored on site because VAT numbers often change as many as 20 times perhaps before the product is actually delivered to a filling station.

  37.  Are you limited as an Association in having information as to the extent that this might be taking place, that there might be fraudulent, unchecked activities taking place that allow people to get by?
  (Mr Holloway)  I think in the area that you are wishing to go, Mr Barnes, it is actually really a question for the VAT inspectors and Customs & Excise who have scheduled visits to make to each of the retail points that we are talking about. Again I heard it referred to earlier that it is the intention of Customs & Excise now, having got the resource in place in Northern Ireland, to visit every single retail outlet in the Province starting from April 1st, and that process, with some assistance being given by ourselves in terms of how best to check the accounts of individual service stations to identify where errors may be in the accounting of purchases and sales, they will actually complete that task just as quickly as possible. That will be the first time as an exercise that this issue has been addressed.
  (Mr Maxwell)  Can I just add to that that the average period for a site visit from a Customs & Excise officer would be three years, except if they saw something untoward in the figures that were going in, so remembering that this problem has probably over this just last year and a half to two years really come to the attention of everyone, it has taken time and I believe that in due course, as our Director has mentioned, that when the site visits take place from the 1st April, then of course detections will in fact start to occur. You also have to remember that quite often, frequently, they are paying for this product in cash and, therefore, it is not hitting the purchase ledger and it is not entering the sales ledger and that is a problem and the Customs & Excise officer who comes out in fact is probably told that the sales are down 40 per cent simply because of the smuggled fuel issue and there is nothing untoward in their accounts in fact to suggest otherwise, apart from a loss of turnover, so it is difficult.

  38.  So what is your assessment of the Customs & Excise operation in these areas? There are the general activities that they engage in and you have talked about the three-yearly visits, but then there are the particular anti-smuggling operations, so how do you judge these areas?
  (Mr Holloway)  I think in terms of the task that we are talking about here in addressing the problem at its source, and that is when the smuggled product crosses the border, you are talking about a 300-mile border when you actually weave your way right along it between the North and the South, and policing that border, if indeed there was the political will to do so, is, I would suggest, an impossible task. I think I have heard from Customs & Excise during the time that I have been involved in this problem that they have tried to concentrate on patterns that the large players actually work to and they have tried to contain the problem by perhaps choosing to pick out the large players as that would produce the largest effect, but again, I stress, you are talking about the limited resource of people, although they have supplemented it very substantially from a year ago, addressing a 300-mile border between the North and the South.

  39.  So is this the major problem that you say they have? They might have some limited resources, but you are saying that they have got almost an impossible task to engage in given the length of the border, so is that the major inhibition that you see being placed upon Customs or might there be some others?
  (Mr Holloway)  I think it most definitely is the biggest single restraining factor because clearly if it were possible to identify when the product is being moved, then their success rate would be higher. I would have to say also, to come to the second part of your question, that this escalated on March 18th 1998 which had great proximity to Good Friday in 1998 and it may well be that the political will was diluted because of those two dates being so close together in order to give the problem the due attention that it deserved at that moment in time.


 
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