Smuggling of base oils and fuels is a significant problem in numerous countries, but possibly nowhere worse than in Turkey. Such activity is difficult to quantify, of course, but consider the following: In 2011, Turkey pro-duced 550,000 metric tons of lubri-cants, according to the Istanbul-based Petroleum Industry Association. In the same year, the nation produced 380,000 tons of base oils and im-ported a whopping 1 million tons of base oils. After factoring in imports and exports of lubricants and lube additives, Petder (the association) con-cluded that Turkey had an oversupply of 1 million tons of base oils and lubes in 2011. The obvious question is what is happening to all of that base oil.
Turkish lube blenders say the an-swer is equally obvious – that much of those base oil cargoes are in fact diesel, and that some base oil gets used as fuel. In either case, the purpose of those actors is to reduce their tax payments. The excise tax that Turkey charges on base oils is approxi-mately one third of the tax on diesel.
Turkey has among the highest fuels prices in the world, partly because of the excise tax (0.69 per liter) and value added tax (18 percent) that it charges on diesel and gasoline. Until 2008, base oils incurred the same excise tax, but in that year the govern-ment lowered the charge on base oils to 30 lira per kilogram.
Lubricant blenders of course welcomed a change that significantly reduced their base oil costs, along with subsequent changes that allowed them to recoup all or part of their excise tax payments on stocks used to make industrial lubricants. But there is widespread agreement that the tax reduction triggered an escalation in false labeling of fuels and use of base oils as fuels.
It mainly started from 2008 due to the difference in excise taxes on base oils and diesel or solvent mixtures that can be used as Number 10 fuel, Pet-der Technical Affairs Manager Serkan Bereket told the Argus European Base Oils Markets conference in Istanbul in March.
Its hard to pinpoint the impact on Turkeys lubricant industry. Falsely labeled fuel mostly represents a loss of revenue for the government, but if significant volumes of base oils are be-ing diverted to fuel tanks, that could hurt base oil availability and drive up costs.
Bereket noted that imports la-beled as base oil fell in 2012, and he expressed hopes that stricter govern-ment monitoring could help to further reduce false practices.