15th July 2003

GOVERNMENT PROPOSALS FOR “BLUE  DIESEL” SEEN AS AN UNWELCOME BURDEN ON THE OIL INDUSTRY AND AN OPEN INVITATION TO FRAUDSTERS

The UK Petroleum Industry Association (UKPIA) , the trade association representing refiners and marketers of fuels in the UK, has asked the Government to drop one of its two proposed methods for offsetting the planned distance related Lorry Road User Charge (LRUC) by means of a reduced rate of duty on diesel for Heavy Goods Vehicles (HGVs). Under the proposal to which UKPIA has objected a new duty rebated fuel, chemically marked with a blue dye to distinguish it from other types of diesel and only for use in qualifying HGVs, would need to be introduced to the UK market.

UKPIA strongly favours the Government’s other proposal for offsetting the LRUC, which would require hauliers to make a retrospective claim for a duty rebate direct to the Government. This method would link a duty claim with the amount of the LRUC, providing a system of cross-reference which would be markedly less open to fraud and abuse.
 
UKPIA has called the “blue diesel” proposal “unworkable, costly for the oil industry and an open invitation to fraudsters, likely to exacerbate an already serious level of fraud on existing rebated diesel fuels”.
 
The industry’s concerns were expressed in a recent meeting with Government representatives and centre on three main areas: fraud, infrastructure costs for the industry and operational/compliance complications.
 
The concerns stem in part from the experience of a scheme known as Registered Dealers in Controlled Oils (RDCO), which was introduced in 2003 with the aim of reducing the high level of fraud on duty rebated ‘red diesel’ mainly used in agriculture. It is too early to tell if the scheme has had any appreciable impact on the estimated £450 million p.a. of lost duty on red diesel but it is clear that the RDCO scheme has already put a considerable administrative burden and hence cost on oil distributors.
 
Adding a new duty rebated ‘blue diesel” will add further significant cost burdens on the industry and it will also greatly increase the scope for fraud because the volumes involved are much higher, there are many more refuelling points for HGVs than for agricultural users and there would be no cross-check between an HGV registered under the LRUC scheme and use of ‘blue diesel’.
 
Operational costs for the industry would be considerable with the new product,  requiring the introduction of new chemical dye injection facilities, segregated tanks at filling stations, as well as additional IT and compliance systems.
 
Serious complications would also arise from the fact that many HGVs refuel at retail filling stations, thus requiring extension of the RDCO scheme to these locations. Aside from the administrative burden that this would involve, validation of HGVs’ entitlement to fill up with ‘blue diesel’ would place service station staff under an onerous duty and expose them to personal risk as, in practice, they would control the public’s access to the new discounted blue diesel on the forecourt.