Questions have emerged over how Malaysia’s customs rules apply when petroleum cargo under K8 arrangements is blended to produce VLSFO at Tanjung Langsat.
KUALA LUMPUR: Questions surrounding the regulatory treatment of petroleum cargo handled under Malaysia’s customs-controlled arrangements have extended to the blending of petroleum components to produce Very Low Sulphur Fuel Oil (VLSFO), with calls for clearer guidance on how such activities should be classified.
Datuk Seri R. Jeyenderan, who has been seeking clarification on the handling and traceability of petroleum cargo declared under the K8 procedure at Tanjung Langsat, Johor, said the relevant authorities should clarify how existing rules apply when cargo is stored, transferred or blended within customs-controlled facilities.
The Maritime Network Sdn Bhd CEO said an important issue was how petroleum brought into such facilities should be treated if it is subsequently combined with other petroleum components to produce a commercial product such as VLSFO.
“If different petroleum products are mixed in the same tank to produce VLSFO, the industry needs to understand whether the activity continues to fall within the scope of storage or whether different regulatory requirements apply because the composition of the cargo has changed,” he said.
VLSFO is a marine fuel produced by blending petroleum components to meet specified fuel requirements. The precise regulatory treatment of blending activities depends on the applicable customs, petroleum and trade rules.
Jeyenderan said the Royal Malaysian Customs Department (RMCD) should clarify whether the original K8 declaration remains applicable when petroleum cargo undergoes blending, or whether additional documentation or a separate declaration may be required.
He also called for clarity on the treatment of any applicable duties or taxes when petroleum imported under customs-controlled arrangements is blended into VLSFO before being exported or otherwise removed from the facility.
Another issue, he said, was maintaining an accurate record of cargo where shore tanks contain existing petroleum inventory before a new shipment is discharged.
“Operators should be able to account for what entered the tank, what was already there, what was subsequently blended and what ultimately left the facility,” he said.
Jeyenderan said a properly documented mass-balance system could help authorities and operators reconcile quantities entering and leaving storage facilities, particularly where different petroleum streams are stored or blended together.
He said greater clarity was also needed on the distinction between activities involving storage or transit and those involving processing or value-added operations.
Rather than assuming that new taxation was required, Jeyenderan said the immediate issue was to establish how existing customs, free-zone, bonded-storage and petroleum regulations apply when petroleum cargo is blended or otherwise altered.
“The starting point should be clarity on the existing rules and their application. Industry participants need to know what activities are permitted, what records must be maintained and what declarations are required in different circumstances,” he said.
The questions arise against the backdrop of wider discussion concerning nearly 77,000 tonnes of petroleum cargo declared under K8 at Tanjung Langsat, where questions have been raised about the recording and traceability of cargo following discharge into tanks containing existing inventories.
The issues raised by Jeyenderan concern the interpretation and application of existing regulatory requirements. They do not, by themselves, establish that any company, terminal operator or other party has breached customs, tax or other laws.
Any determination on the applicable requirements would rest with the relevant authorities based on the specific circumstances, documentation and regulations involved.
