Customs eyes up fuel 'slops'

HAMISH RUTHERFORD
Last updated 07:34 25/01/2013

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Customs is investigating whether fuel companies are avoiding paying millions in tax by recycling so-called "slops" into petrol, without paying excise.

In December the Court of Appeal ruled in favour of Customs in its case against Australian-owned Gull, after claiming it is owed up to $22 million in unpaid excise and penalties.

The action dated back to 2010, when Customs discovered Gull was quietly blending butane into petrol, and claimed it was gaining a tax advantage by paying the lower rate of excise on that additional volume.

During the course of the investigation Customs' attention was drawn to what the industry refers to as "slops", undefined hydrocarbon mixtures created by fuel companies through the unavoidable mixing of petrol, diesel and jet fuel.

The mixture is created in small volumes from the draining of residual liquid in fuel trucks when they return to fuel terminals. Larger volumes are believed to be created in the form of "interface", the mixed grade created when a fuel pipeline switches from carrying one type of fuel to another.

Collected in tanks, the slops are later recycled into other forms of fuel, although industry sources say it is virtually all mixed into petrol. This is because jet fuel must remain effectively pure, while adding petrol to diesel makes it too explosive, and jet fuel contains too much sulphur for a diesel mixture to meet fuel specifications.

However, there are claims this could avoid tax, because diesel and jet fuel are excise-exempt. Customs has already had contact with Wiri Oil Services, which operates the 167-kilometre fuel pipeline between the fuel refinery at Marsden Pt and Auckland.

Wiri is owned by the four major fuel companies, Z Energy, BP, Chevron (which markets fuel as Caltex) and Mobil.

Wiri Oil Services general manager Ian Cummings said Customs had been in contact last year about the slops issue and whether to switch responsibility for excise to the Auckland end of the pipeline.

However, since the latest court decision, which effectively reversed a decision of the High Court in Gull's favour, Wiri has had no contact from Customs, Cummings said. Though the interface could be "several thousand litres at a time", occurring daily or every other day, he said, the volumes involved were "minimal".

A spokeswoman for Customs said the issue was live, but no decision had been made over an excise claim. Fairfax NZ

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- Taranaki Daily News

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