Why Nanotag Program – Marking of Subsidised Diesel Fails

By Watie

In February 2008, Penang MDTCC had proven to Teras Kimia that Nanotag can be laundered from the marked diesel using fuller earth and acid. To overcome the laundering problem, Teras Kimia had introduced a new marker in the Nanotag blend. However, the new blend is not miscible in diesel and precipitates on the wall and bottom of the tanker compartment. The more the tanker carries subsidised diesel, the more markers accumulate thus contaminating all the subsequent products.

The problem had become so serious that several oil companies namely Petronas, Shell and Esso had launched complaints to Teras Kimia saying that their products, both petrol and diesel had changed colour to red ie colour of the Nanotag marker. This occurred due to the high concentration of precipitated Nanotag markers in the tanker compartment. Supplier for the Nanotag marker, Authentix, had even admitted this problem. 

Teras Kimia however had denied and concealed the problem from MDTCC’s knowledge despite knowing this issue is a major concern to the ministry as bona fide and unsuspecting industrial diesel buyers, who do not have any means to distinguish whether the diesel contains Nanotag or not, can be wrongfully charged with possession of subsidised diesel. 

2. False on-site results

The presence of Nanotag is identified through a test conducted by Teras Kimia personnel on-site. MDTCC officer will take the necessary action according to the test result given by Teras Kimia including confiscating the diesel if the result is positive. 

Close to four thousand on-site samples when re-tested in the lab yield contradictory results. Some of the samples tested positive on-site are actually negative (false positive) while others tested negative on-site are actually positive (false negative). 

If MDTCC confiscates the diesel due to a false positive, this will result in unnecessary interruption to the consumer’s operation and loss of income. While a false negative could suggest Teras Kimia personnel is in cohorts with the premises owner. On 20/7/2007, two Teras Kimia personnel were arrested by MACC for being suspected of receiving a bribe from a premises owner.   

The integrity of the program had already been compromised by the unreliable and inconsistent on-site results. 

3. No verification by government officer on marking process

Marking process is when Nanotag is poured into subsidised diesel. This process is solely carried out by Teras Kimia personnel at all 35 fuel depots nationwide without being witnessed by any government officers.   

On average, out of 5000 tankers that exit fuel depots daily, Teras Kimia manually identifies and does marking on 1500 tankers carrying subsidised diesel. What assurance does the ministry have that Nanotag marking had been done accurately? On the other hand, does the ministry have the resources to place officers at all the 35 fuel depots; some of which operate 24-7?   

Without any witness from the government officers during the marking process, it opens a window for those charged with having subsidised diesel on their premises to argue the credibility of the process. It is even more damaging if bona fide buyers had their diesel wrongly marked with Nanotag.     


4. Reduction in Diesel Seizure 

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Source: MDTCC Biennial Report 2006-2007 http://www.kpdnkk.gov.my/index.php?option=com_content&task=blogcategory&id=191&Itemid=553 

Your browser may not support display of this image. Source: MDTCC Biennial Report 2006-2007 http://www.kpdnkk.gov.my/index.php?option=com_content&task=blogcategory&id=191&Itemid=553 


  Seizures Total (Litre) Seizures Value (RM)
Before Nanotag

1 Jan 2006 to 4 Sep 2006

After Nanotag

5 Sept 2006 to 31 Dec 2007



After full implementation of Nanotag in 2007, there was an 81% drop in seizure volume equivalent to 3.29mil ltrs worth RM6mil. The Ministry was able to seize more diesel before the implementation of Nanotag.

2. The source of subsidised diesel come from only 3 sectors; petrol stations, fishermen and transport. So only these 3 sectors can abuse the subsidy. 
Prior to the implementation of Nanotag, the Ministry had taken stern action against errant petrol station retailers who abuse subsidised diesel. In other words, the Ministry went straight to the source. 
The pertinent question to be asked is, after the implementation of Nanotag, how many errant petrol station retailers have been taken to task by the Ministry? 
The amended Control of Supplies Act 2006 only targets the end users who are not eligible for subsidised diesel and not the suppliers. 

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The graph above shows in 2008, diesel sales increased by 19.2% from previous year to 6 billion litres, highest since 2004. 
This is not because sales of diesel engine vehicles suddenly shot up or there was an increase in diesel consumption by Malaysian diesel engine vehicles but it was because of the high subsidy rate in 2008 which led to an increase in abuse and smuggling of subsidised diesel. 
Average retail diesel subsidy rate: 
2006 – 43.65sen/ltr 
2007 – 47.73sen/ltr 
2008 – 102.33sen/ltr 
2008 is average subsidy from Jan’08 to Sept ’08. From Oct ’08 to May ‘09, Automatic Pricing Mechanism (APM) was in duty mode*. 
So how much exactly had been abused? Using 2008 GDP of 4% as a basis, 2008 volume should only be 5.2 billion ltrs instead of 6 billion ltrs*. 
Therefore, the government had spent an excess of RM800mil on the subsidy (using the average subsidy rate of 102.33sen/ltr) for the balance of 0.8 billion litres which would have been smuggled or had gone to sectors not entitled to subsidised diesel. 
Furthermore if the total year 2008 were to be broken down by monthly sales, it will show that in Oct ’08, when there was no more subsidy for the retail sector, sales plummeted by more than 35% as compared to sales in May ’08 when the subsidy rate was at its highest of RM1.83/ltr. 
When the market price is lower than the pump price, there is no use for industries or smugglers to abuse subsidised diesel at petrol station anymore as they can buy cheaper diesel directly from fuel depots thus explaining the drastic drop in Oct 08 sales onward. 
In short, the sales volume trend in the retail sector (petrol station) corresponds exactly to the movement of subsidy rate.  

To make matters worse, the 2008 Annual Report reveals that ONLY 23 cases were charged under the Nanotag programme and with only 0.5mil ltrs diesel seized, a drop of 141 cases from the previous year. 

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MDTCC must explain: 
1. why when diesel abuse was at its highest, cases under Nanotag programme decreased from 164 to 23 cases? 
2. how was the RM117 million spent on this project? Does the Ministry need to spend RM117 million just to charge 23 abusers and seize less than RM1mil worth of diesel? 
3. By the end of its 5-year programme, Nanotag will cost taxpayers more than half a billion ringgit. Why should taxpayers continue to pay RM117 million for this programme when clearly it’s not being effectively managed to curb the abuse of subsidised diesel?