SGS Philippines and SICPA awarded contract for Philippine fuel marking program

SGS Philippines, Inc., together with SICPA SA, was awarded the contract to provide fuel markers and field monitoring services for the Philippine fuel marking program.

The fuel marking and monitoring system is part of government efforts to curb the rampant oil smuggling in the Philippines. According to the Philippine Bureau of Customs, as much as 20% of total gasoline and diesel fuel consumption between 2000 and 2006 were smuggled, thus evading the payment of local taxes.

Marking of petroleum products, whether imported or produced domestically, has become mandatory under the Philippine Tax Reform for Acceleration and Inclusion (TRAIN) Law or Republic Act No. 10963 which came into effect in January 2018. The marking program is mandatory for five years.

SICPA and SGS will supply fuel markers for all taxable fuel products, excluding Jet A1, Avgas, crude oil, and liquefied petroleum gas.

Initially, the Philippine Department of Finance indicated that the fuel marking program will be in place by the second half of 2018. However, this appears to be highly unlikely at this point.

Under the TRAIN law, the government shall engage only one fuel marking service provider, to be supervised and directed by the Bureau of Customs and the Bureau of Internal Revenue.  The selected provider shall provide, monitor and administer the fuel markers; provide equipment and devices; conduct field and confirmatory tests and carry out other acts necessary to implement the program.

The customs bureau said that only SGS and SICPA submitted a proposal during the submission and opening of bids on 27 July, out of only two shortlisted companies. The value of the contract was PHP0.06884 per litre.

The Department of Budget and Management Procurement Service (DBMPS), which undertook the bidding on behalf of the customs bureau, awarded the “notice to proceed” on 30 October.

Under the terms of the contract, DBMPS will pay SGS and SICPA the contract price for the first year of the fuel marking program, while the Bureau of Customs shall be responsible for paying the contract price starting the second year, from income collected through trust receipts created pursuant to Section 148A of the National Internal Revenue Code, as amended by Republic Act 10963. Effectively, the cost of the fuel marker program is passed on to the refiner, manufacturer or importer of petroleum products, although the government may subsidize the cost in the first year of program implementation.

The Department of Finance has estimated that revenue losses in terms of unpaid value-added taxes and excise taxes arising from smuggling or misdeclaration amounted to PHP26.87 billion (USD513 million) in 2016 alone.

SICPA, originally called “Société Industrielle et Commerciale de Produits Alimentaires” (Industrial and Commercial Food Products Company), based in Switzerland, is better known for supplying security inks in the 1940s for the Spanish peseta banknotes and is recognised as one of the pioneers in the field of banknote security.