Source: Institute for Security Studies (ISS)Who Profits from Copper Theft? Erin Torkelson, Researcher, Organised Crime and Money Laundering Programme, Cape Town
There is little doubt that copper cable theft is a growing problem in South Africa, particularly for the electricity, telecommunications, and railway parastatals Eskom, Telkom, and Transnet.
In a 2009 parliamentary session on copper cable theft, it was revealed that Eskom lost R14.8 million in stolen materials, R38.7 million in replacement infrastructure and R18.2 million in security mitigation for 2008/09 (up from R10.5, 21.5, and R14.5 million respectively for 2007/08). Likewise, Transnet suffered losses of R12 million in stolen materials, R30.1 million in replacement infrastructure, and R116.0 million in security mitigation for 2008/09 (up from R8.9 million, R22.2 million and R91.9 million for 2007/08). Telkom appears to top the charts, reportedly spending R141 million on new telecommunications infrastructure and R231 million on security mitigation in 2007/2008. What is not clear from these figures is who is benefiting the most from this illegal economy and what can be done to thwart the beneficiaries?
Copper is a coveted commodity. Since 1890, industrialization has relied on the extensive use of copper’s electrical conductive properties for modern infrastructure. Copper-based electrification projects converted small handicrafts into large factory productions, which in turn created the need for distribution networks (copper-based railways) and communications infrastructure (copper-based telecommunications). This strong correlation between copper and industrial development is best illustrated by copper’s performance on metal markets.
After a century of extensive usage and demand-driven high prices, copper hit a 60-year low in 1999 ($1.32/kg), reflecting a decline in demand amongst the post-industrial societies. In the last decade, however, China has become the most rapidly industrializing nation in the world and the largest consumer of copper (accounting for 20% of the global market). As a result, the price of copper rose to an all-time high in May 2006 ($8.27/kg) and has held stable since then.
The consistently high price of copper makes it a valuable commodity for illicit business. Thieves are sophisticated market analysts, who decide when the price of copper has risen to a point where the theft of this particular commodity (weighed against the risk) is more financially rewarding than any other. Copper is widely available, poorly secured and easy to steal due to the extensive transportation, power and communications networks of Transnet, Eskom and Telkom. It is also extremely easy to sell, due to eager scrap dealers, looking to profit from the global price increase. Consequently, there are many actors – from petty thieves and organized criminals to scrap dealers and private security companies – benefiting from this illicit economy, and their various modus operandi will be analyzed here.
Petty criminals comprise the first group benefiting from copper cable theft. They are often already involved in collecting scrap metal for subsistence. Much of the work of scrap collectors is legal, albeit informal, but the illegal trade is far more lucrative, and consequently, very attractive. Scrap collectors are often tempted to supplement their earnings by stealing a few metres of copper cable from sources close to home.
Petty thieves dig pilot holes around lampposts to assess the quality of underground copper and then they light fires in those holes to interrupt the electrical current. After doing this, the cables can be safely severed, exhumed and stripped, doing away with any identifying marks. Occasionally, the criminals are tipped off by corrupt council officials about unused cable in municipal stores or on construction sites.
Organised crime networks have been implicated in the theft of miles of cable from peri-urban or rural areas in Gauteng, the North West and KwaZulu-Natal. Many networks are domestic, but recent evidence suggests the involvement of militarily trained cells from Southern Africa. Based in Springs (outside of Johannesburg), their modus operandi entails stealing underground cable in the early hours of the morning, or from electrical sub-stations, construction sites or vehicles in transit. They use hired vehicles to transport the copper. They may even use trucking and ambulance vehicles. Organised syndicates always rely on inside information and expert reconnaissance.
Petty and organized thieves sell most of their copper to local scrap dealers, who make up the third group of beneficiaries. Most scrap dealers have connections with foreign export agents, primarily of Chinese and Pakistani origin. Though certified scrap dealers are not meant to buy copper from questionable sources, for many the financial incentive is high enough to look the other way. This has prompted analysts to call for better regulation of the second-hand goods industry, and indeed a new law has been passed for this purpose.
The Second-hand Goods Act 6, 2009, is not yet effectively used. Disreputable scrap dealers have always found innovative ways of dodging legislation by sponsoring ‘mobile scrap yards’ to buy illicit copper from traveling vehicles, establishing smelters at peri-urban farms to change the appearance of illicit copper, and opening unregulated bucket shops to ‘clean’ the copper before supplying licensed agents. There is also evidence that foreign buyers, which may include the Chinese Triads and other Asian groups, are now bypassing local scrap agents altogether in response to increased scrutiny. One Pakistani syndicate with an address in Hillbrow, Johannesburg, has been using shipping containers in deserted areas as drop-off points for stolen copper. These containers are then driven to Durban and shipped abroad with falsified customs paperwork.
A fourth group that is possibly also benefiting from copper cable theft is the private security industry. Private security firms have the potential to profit from copper cable theft, which should set alarm bells ringing for those analysing organized crime. Similar to the logic of racketeering, private security companies depend upon the problem continuing – not being resolved. Some have been awarded large contracts to combat copper theft and protect state assets; however, there is little evidence of their effectiveness. It is useful to compare loss statistics from Transnet and Telkom, which rely on outsourced private security companies, with Eskom, which has recently switched to in-house security mitigation. Eskom has the smallest security budget overall (spending R18.2 million as compared to Transnet’s R116 million and Telkom’s R231 million), but has experienced the best results. Transnet’s losses have tripled over the last 5 years, and Telkom’s losses have also substantially increased. Eskom’s losses, however, have begun to level off in the last year, suggesting that in-house security is a cheaper and more effective option.
So, before proposing more security to stem the copper trade, the questions should be asked: who is making the most from copper cable theft and what sorts of interventions will restrain thieves, scrap dealers and security companies alike?
