China's customs authorities detained a Glencore (GLEN.UL) trader as part of an investigation into tax evasion on fuel imports, sources with direct knowledge of the situation said on Friday.
Li Buhua, a Chinese national, is a member of Glencore's Beijing-based trading team, the sources said. Li was detained by local customs authorities and released last week on bail, they added. Officials from Glencore were not immediately available for comment.
The Swiss commodity trading giant, valued earlier this year by one analyst at about $60 billion, is preparing for what could be a record London initial public offering (IPO).
Chinese customs officials have since late last year been looking into imports of "power kerosene," a fuel of a quality between diesel and kerosene that can easily be turned into diesel, but is not subject to a hefty consumption tax which otherwise applies to diesel or kerosene.
China levies a consumption tax of about $125 per tonne on imports of diesel or jet kerosene, but power kerosene is exempt.
The investigation involves a 100,000-tonne cargo Glencore brought in through China's Zhuhai customs port late last year, said the sources. On those figures, the value of the tax would be about $12.5 million.
"It's still being investigated. There is no conclusion yet," said a trader with direct knowledge of the situation. "Glencore is only one of the suppliers," the trader added.
The customs authorities also detained another trader from chemical firm Kolmar and that trader was also released on bail, sources familiar with the situation said.
Nobody at Kolmar was immediately available for comment. A spokesman with China's general Administration of Customs said he could not comment immediately and would check with relevant departments.
Mostly sourced from Asia oil hub Singapore, oil major BP (BP.L) and one or two Western trading houses were among the suppliers of power kerosene, traders told Reuters last year.
The power kerosene boom helped push overall kerosene imports to a record 861,000 tonnes in November. That coincided with a shortage of diesel in China, the result of a crackdown on coal use which spurred many power users to switch to stand-alone diesel generators. The fuel was treated by regional customs departments as neither diesel nor aviation fuel, traders said.
"It has a potential legal risk because of the tax issue involved," one Beijing-based senior trader said in December. "But you can't really blame these suppliers as China's diesel shortage forced traders to become more creative."
Also under investigations is China's state oil trader Zhuhai Zhenrong Corp's Guangdong trading arm, which traders said acted as one of the main import agents for the power kerosene trades. Officials at Zhenrong's Beijing headquarters were not immediately available for comment. The customs authorities started to probe the trades after Sinopec Corp (0386.
HK), the country's largest refiner, complained to the authorities about the exotic oil flows. China's overall kerosene imports are traditionally dominated by jet kerosene, the grade used for aviation fuel. But late in 2010 imports of other grades suddenly took off, peaking in December when the volume even surpassed that of jet fuel.
Since then kerosene imports appear to have returned to normal, according to data from China's Customs office. The trade in power kerosene may also have thinned out because the rush to import the fuel pushed prices up to more than the cost of diesel.
Global commodities companies have run into trouble with Chinese authorities in the past.
In a more serious case, Rio Tinto's (RIO.L) (RIO.AX) former chief iron ore salesman in China, Stern Hu, was last year jailed for 10 years for accepting bribes and stealing state secrets. Hu's three Chinese colleagues were also jailed.
