Mon 21 Sep 2020

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Two main suppliers and different factors influencing prices… Who controls fuel sector in northern Syria?

Syria’s opposition Civil Defense volunteers extinguishing a fire at a rudimentary oil refinery in Ma'arrat al-Nu'man, Idlib – 10 March 2020 (Reuters)

Syria’s opposition Civil Defense volunteers extinguishing a fire at a rudimentary oil refinery in Ma'arrat al-Nu'man, Idlib – 10 March 2020 (Reuters)

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Ali Darwish | Nour al-Deen Ramadan | Zeinab Masri 

Every day, dozens of tank trucks, loaded with tons of fuel, cross Turkey through the border checkpoints with Syria heading towards the distribution companies or directly to the service stations in the opposition-held areas in northern Syria.

These fuel tanks pass through another back road along the areas controlled by the Syrian Democratic Forces (SDF) as they head toward northern Syria. This region, with an estimated population of 4.1 million people according to UN statistics, is receiving fuel from the leading suppliers, even though it is devoid of any oil resources.

European fuels, including European diesel, gasoline, and domestic gas, are entering through Syrian-Turkish border checkpoints. As for refined crude fuel and all its forms and other fuels for industrial use, they are entering the areas controlled by the opposition parties through the spots dominated by the Syrian Democratic Forces (SDF).

Fuel prices occasionally vary, given the lack of control exercised by the “Syrian-Interim Government (SIG)” in Aleppo countryside which is under their control, coupled with the efforts of the Syrian Salvation Government (SSG) in the governorate of Idlib and the western countryside of Aleppo to adjust the situation via licensed companies.

In this article, Enab Baladi discusses how fuel prices are being fixed, which party is responsible for fuel importation, and who is managing this delicate sector, by interviewing administrators at the crossing points, de facto governments, and specialized economists.

Exclusively … a Turkish company supplies the North with fuel

Fuel prices in northern Syria are regulated by a Turkish supplier that fixes the prices

The opposition-held areas import all oil from Turkey through a single company, whether it is for Idlib or Aleppo, according to statements released by Safwan al-Ahmad, the director of the media office of the “Watad” oil company, known as the most prominent company that imports fuel into northern Syria, and as stated by Abdullah al-Dak, the owner of the “al-Salam” stations, deployed in al-Bab and Azaz in the northern and eastern countryside of Aleppo.

The process of fuel cargoes entering Syrian territories begins in Turkish ports, where the shipments imported by Abdullah al-Dak first arrive at the port of “Mersin” in southern Turkey, and cross in “transit” to the Turkish territory heading for the checkpoints with Syria.

The owner of “al-Salam” stations explained that the Turkish supplier company has representatives (Turkish merchants) and that it is the exclusive fuel supplier for Syria. So, in case the Syrian merchant needs to import fuel, he should contact one of the company’s representatives and pay a deposit of five dollars for each ton of fuel to one of the representatives, who transfers the cargo to the merchant in Syria.

 

A young man working at a rudimentary oil facility in the town of Marmarin in Idlib – 21 November 2018 (Reuters)

A young man working at a rudimentary oil facility in the town of Marmarin in Idlib – 21 November 2018 (Reuters)

Syrian stations and companies pass through Turkish customs at the border crossings on the Turkish side. During the transportation of cargo at the checkpoints on the Syrian side, the owner pays the taxes, so that the fuel can enter Syrian land, and tank loads are emptied in the stations.

Based on this principle, the Turkish state has no official involvement in the price-setting process, according to Abdullah al-Dak.

As for the “Watad” company operating in Idlib, its cargoes are transferred in various stages, reaching the “Bab al-Hawa” crossing, and the tanks on the Turkish side of the crossing are replaced by the “Watad” tanks. They are distributed to stations scattered in Idlib, according to Safwan al-Ahmad.

Enab Baladi tried to verify the identity of the Turkish supplier, but the companies “Watad” and “Kaf,” operating in Idlib, refused to reveal the companies’ names.

Enab Baladi managed to find the company’s name, which is “MT,” after contacting several sources, including station owners and merchants. Still, no detailed information was found, even in its search for the company’s location in Turkey.

Factors that affect fuel prices

Fuel importers in northern Syria pay prices for shipments in U.S. dollars. When arriving at the stations, they are priced in Turkish liras, since dollar coins are not available. As a result, fuel prices are subject to global fluctuations of oil prices and the exchange rates of the Turkish lira change, according to the director of “Watad” media office Safwan al-Ahmad.

Fuel prices are also set according to the marketing work plan within each company, and competitiveness among companies working in this field, said the public relations office of the oil company “Kaf” in Idlib, to Enab Baladi.

Two firms in Idlib are licensed to work in the hydrocarbon sector, “Watad” and “Kaf.” Though each firm has a market share, this share depends on price competitiveness and the spread of each company.

“Watad” was established in 2018, and it was considered as the exclusive importer of fuel in the territories controlled by the “Salvation Government,” and after that, “Hayat Tahrir al-Sham.”

“Kaf” was founded in 2018, and asserts and it is working to target the consumer directly by establishing stations and centers under its ownership.

 

The taxes imposed on fuel shipments within areas under the control of the opposition factions, particularly shipments coming from the SDF-controlled areas, which reach in some cases $700 per one vehicle in favor of the dominant faction, are among the main issues that raise prices, said the economic researcher Khaled Terkawy to Enab Baladi.

 

The “salvation” and “interim” governments have relied on the Turkish lira in commercial operations since last June, given the difference in the exchange rate of the dollar compared to the Syrian pound, as well as the increase in the exchange rate to over 3,000 pounds against the dollar in early June. The pound has witnessed an improvement and was stable at around 2,000.

Yet, the exchange rate of the dollar against the Turkish lira was not stable, too, as it declined on 18 August, to 7.37 liras compared to one dollar, while on 1 August, it was 6.95 liras compared to one dollar, resulting in higher fuel prices in Syria.

The international price of oil, which fell to its lowest level last April, also plays a role by recording 11.57 dollars per barrel of crude, and then it has recovered steadily to reach 43.12 on 17 August.

The Turkish company made discounts to “Watad” over the price of imported fuel during the price drop last April when the cost of a barrel of U.S. crude oil reached less than zero dollars for the first time in its history.

The company bought a barrel of gasoline at $61.9, a barrel of diesel at $44, and liquefied petroleum gas (LPG) cylinder at $2.2, according to Safwan al-Ahmad.

Who fixes prices?

In stable conditions for international systems that provide fuel support, the responsibility for managing the fuel sector within the country is between the hands of “public foundation for fuels.”

The Syrian government-linked General Fuel Distribution Co (SADCOP) is still working to manage the sector in its areas of control, as it transfers fuel from refineries and oil sites and distributes it to a group of centers, according to specific schedules and plans, and provides them at a subsidized price. Consequently, it would restrict the sale only through it, and force the stations to pay a subsidized price that it sets, according to what the economic researcher Khaled Terkawy said to Enab Baladi.

In countries where there is no support system, any merchant can import fuel and sell it at specific prices, meaning allowing all traders to sell and create market price competition.

However, this competition in northern Syria is limited to specific destinations and thus does not create a wide competition that affects prices in the interest of the consumer.

As most of the poor people live in it (according to UN estimates, 83% of Syrians live below the poverty line), and there is no subsidized fuel, it is supposed to be left to traders to create price competition to help the population, according to Terkawy, but if the dominant party does not want to help the population, then it is sold only through it.

If we want to regulate this process, the sector must be neutralized and controlled by a central administration, and this applies to all sectors, not just fuel, according to researcher Khaled Terkawy.

In an interview with Enab Baladi, a researcher at Al Sharq Center and the oil engineer, Saad al-Sharaa, believes that in the case of opposition-controlled areas, it is necessary to divide them into two regions: the first is Idlib and the surrounding countryside, which controls the oil and gas market where the “Watad” company operates. The second is the rest of the areas where there is no specific authority in charge of managing fuel.

The control of the sale process is a result of the market control process, and fuels are imported products in their general sense, whether imported from Turkey or coming from “SDF” regions. This means that the prices of these materials are known, and therefore the sale process is programmed according to what is called the “market system,” according to al-Sharaa.

For example, if a barrel of gasoline comes from the region of origin in the east of the Euphrates for 100,000 Syrian pounds, and the merchant takes a profit of 10,000 or 20,000 pounds, then there is no significant margin for manipulation.

In Idlib and its countryside, there is the Watad Company, which distributes fuel in two ways: the first being to approved points (stations or gas stations) or the like, or in its distribution sites.

Almost daily, Watad issues a price bulletin, and this is a major setting. The operation is similar to managing fuel in the areas controlled by the Syrian regime, where gasoline is priced in Rif Dimashq at the same price in the Qamishli region in northeastern Syria (despite the unofficial infringements), according to al-Sharaa.

This is confirmed by the public relations official in the ministry of economy and resources in the “salvation government” (controlling Idlib and coordinating with Watad), Muhammad Daaboul. He said that “fuels are priced” according to a specific mechanism that achieves consumer protection, product quality, and the continued availability of oil derivatives for economic actors.” This is being done by requiring companies licensed to the “salvation government” to stock up on oil derivatives sufficient for the essential activities and services of hospitals, furnaces, water, and electricity if the fuel supply is interrupted.

The companies licensed to the salvation government are obligated to a pricing mechanism that produces regular prices in the event of a change in the exchange rate or an increase or decrease in the fuel price from the source, according to Daaboul.

Watad: The controller of the fuel sector in Idlib

The company was established in January 2018 and is divided into several divisions: gas, station, and markets.

It established a factory to fill domestic LPG cylinders and distribute it through distributors and selling points and found scattered fuel markets in opposition areas.

The company granted licenses for old and new gas stations.

It established a market for importing fuel from the Afrin region, distributing it to institutions and stations and including it in the distribution mechanism, after the activity of importing refined and imported fuels from Afrin (coming from the east of the Euphrates).

Watad Petroleum is a joint-stock company owned by several partners. It obtained a license from the salvation government and has a commercial registration certification.

The company is accused of monopolizing the fuel trade in Idlib. Still, it said that its goals are to regulate and ensure the continuity of hydrocarbon trade operations in the area, in addition to maintaining stocks for times of crisis.

The company criticized, in a documentary it has produced recently, the fuel trade before in the pre-ISIS era when merchants used to scam people by mixing materials and raising prices.

Gas stations and stalls were widespread and monopolized fuel selling. There was no role for the petrol stations designated for this purpose, according to the company.

There were no regulatory programs, storage capacity, or settings that could be controlled, with the difference in prices between one area and another due to the proximity of the regions to random fuel markets. Thus, Watad Petroleum emphasized its role in ending the chaotic situation that prevailed in the north.

However, former leader of Hayat Tahrir Al-Sham (HTS), known as Abu al-Abd Ashidaa, criticized in an article entitled “So that the Ship Does Not Sink,” issued in September 2019, the fact that oil trade was restricted to companies affiliated with the HTS, including Watad Petroleum, which monopolized the fuel market, depriving tens of thousands of people of their jobs in the fuel sector.

A man paying in Turkish lira at a gas station in Jenderes in the countryside of Aleppo – 10 January 2020 (AFP)

Interim government does not get revenue …

Salvation government limits licenses issuance 

The oil sector does not provide any financial returns to the interim government, which manages the countryside of Aleppo, and it does not have any investments in this sector. However, the authorities in the area are preparing a study on the government’s takeover of fuel imports and sales at a reasonable price, especially to farmers.

Up to now, the Syrian interim government did not reach any results, according to what the minister of economy Abdel Hakim al-Masri told Enab Baladi.

One of the foundations that must be available to manage the oil sector is the existence of a ministry concerned with managing this industry.

According to researcher Saad al-Sharaa, in the first round of the formation of the interim government, there was a ministry of energy, but in subsequent sessions, this ministry was omitted because the opposition-controlled areas do not have oil and gas sources. Therefore there is no need for establishing a ministry for this purpose.

Citizens and activists demanded the establishment of a directorate for the management of the hydrocarbons sector, similar to the general foundation for grain, which is run by the interim government but works independently.

Although the general foundation for grain undertakes the process of buying, selling, grinding, and distributing grains to mills and bakery, the institution’s role seemed to decline in favor of the government managing the region amid the prevailing chaotic situation.

Meanwhile, the ministry of economy and resources in the salvation government is responsible for managing fuel trade and following up on the work of the companies and its licensed stations in Idlib and parts of the western countryside of Aleppo.

There are two companies licensed to import fuel in the areas of influence of the salvation government (Idlib and parts of the western countryside of Aleppo), namely Watad Petroleum and Kaf, as each of them works to distribute fuel to outlets, according to what the public relations official in the ministry of economy and resources of the salvation government, Mohammed Daaboul, told Enab Baladi.

Daaboul indicated that to license any company in the areas under the salvation government’s control, a commercial register must be obtained, and the company must have a headquarters, warehouses for storage and specific stock size. He noted that once the company receives a license, it starts importing fuel under an import permit.

Fuel is subjected to checks at Bab al-Hawa crossing and in markets by the supply patrols that monitor the quality of products, and inspect cases of fraud, mixing products and manipulation of prices, etc., in order to ensure that the fuel conforms to the required specifications, according to Daaboul.

The volume of fuel imports in opposition-controlled areas varies according to supply and demand, as well as to seasons. In winter, as well as in the seasons of watering crops, the demand for fuel increases.

Watad Petroleum and Kaf, which are licensed in Idlib, pay taxes to the salvation government, according to the licensing contracts concluded between the two sides.

The Presidency of the Council of Ministers of the salvation government coordinates with Watad Petroleum. A month ago, the Council announced periodic meetings between the two parties, for two reasons: the first is to increase the company’s activity to secure the region’s need for fuel, significantly as this sector has been dramatically affected by military operations.

During the National Army-backed Operation Peace Spring in the east of the Euphrates, launched by the Turkish army, on 9 October 2019, against the (Kurdish) People’s Protection Units (YPG), roads used to transport fuel tanks from east of the Euphrates to the countryside of Aleppo were blocked, causing a shortage of fuel, and doubling the prices of gasoline and diesel.

Researcher Saad al-Sharaa discarded the assumption that there will be a joint administration for these areas because the issue is related to the internal crossings, which also receive royalties when fuel convoys pass and benefit the military factions.

Al-Sharaa asserted that the salvation and interim governments are responsible for the situation, and must assume responsibility for managing the sector, because it affects the daily life of the citizen, as the rise in fuel prices will inevitably affect the cost of goods and transportation, including the prices of essential commodities, like bread.

The researcher indicated that, according to sources, Watad Petroleum tried several months ago to control the markets of the countryside of Aleppo, that is, the areas of operations Olive Branch (Afrin area) and Euphrates Shield (the rest of the northern countryside of Aleppo), but it seems that this attempt was not successful.

 

Absence of governance affects sector management

It can be said that there is a distinction between governmental bodies in the regions of northern Syria, namely in Idlib governorate, in which the salvation government’s headquarters is located, and in Afrin and the countryside of Aleppo as well as the area of ​​Operation Peace Spring (north of Raqqa and al-Hasakah), managed by local councils, with a symbolic presence of the interim government, according to what the researcher at the Omran Center for Strategic Studies, Mohammed al-Abdullah, told Enab Baladi.

The differentiation between official institutions in opposition-controlled areas harmed managing the fuel file, in terms of the lack of unified policies to ensure the availability of the material and continuity of supplies, as well as to counter-smuggling operations and monopoly between these areas and their adjacent sections, which has significant repercussions on prices’ stability over the past years.

Consequently, this unstable situation greatly affected the economy and had adverse effects on various sectors.

Problems that can be solved

Problems facing the oil sector can be summarized in the authorities’ inability to control smuggling and monopoly, price manipulation, and the lack of a unified body concerned with estimating the volume of demand, and securing sufficient strategic stocks in order not to have a sudden interruption in the markets.

Researcher al-Abdullah believes that an integrated plan should be drawn up for managing the hydrocarbon sector through the governmental bodies in the opposition areas, in order to achieve sufficient coordination between the different parties and ensure the success of the plan, while working on the continuity of funds flow to these areas in cooperation with the international supporting institutions.

He also stressed the necessity to work on signing more contracts with private companies to supply oil derivatives via Turkish territory, in order to control fuel imports passing through the border crossings with Turkey, in addition to trying to adopt mechanisms to distribute fuel in proportion to the actual needs of individual consumption and production, in cooperation with the security forces of the opposition areas.

Does Watad Petroleum support HTS?

Watad Petroleum is one of the economic arms of the HTS, which is used as a tool to control the fuel sector, in a way that achieves financial gains for the faction, said researcher al-Abdullah.

Since its establishment, the company has been dedicated to serving personal rather than public interests.

Contrary to rumors about the company’s objective, which consists mainly of supervising and regulating the fuel sector, Watad Petroleum serves other entities affiliated with the HTS that operate independently from the relevant ministries of the salvation government, stated al-Abdullah.

However, al-Sharaa highlighted that Watad Petroleum cannot finance the HTS in a significant way, as the company cannot support large bodies such as a military faction or the salvation government itself.

The researcher justified this by the fact that Watad Petroleum is subsidizing some oil derivatives, adding: “We can say that Watad Petroleum is one of the economic arms of Hayat Tahrir Al-Sham, and as for determining the value of financial gains scored by the faction employing the company’s activities, a lengthy study about the company’s capital and the quantities of fuel it sells is needed.”

 

A fuel shop in Al-Bab - 22 August 2020 (Enab Baladi)

A fuel shop in Al-Bab – 22 August 2020 (Enab Baladi)

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