Thursday, February 9, 2023
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BusinessFuel contraband forces new strategy

Fuel contraband forces new strategy

In a bid to reduce fuel smuggled from Ethiopia to neighboring countries, the Ethiopian government is devising a new fuel supply strategy, which mandates quota based fuel distribution to regional states. Regional states have already embarked on studying the number of residents and fuel demands in each city and towns in their respective regions.

“A significant volume of fuel is smuggled out of Ethiopia via borders, to south Sudan, Kenya, Somalia and Sudan. Of course, we have managed to reduce the contraband of fuel, by far compared to three years ago,” Mulugeta Beyene, deputy commissioner at the Ethiopian Customs Commission (ECC), told The Reporter.

Mulugeta accuses fuel distributing companies, transporters, station owners and retailers of involved in the contraband business, which is currently more intense in Somali, Moyale, and Gambella, though it is smuggled through ‘all border areas’.

According to Mulugeta, the ECC has studied the problem since 2018/19 and confiscated countless fuel trucks engaged in contraband, but the problem has not stopped.

The major reason behind the fuel contraband is subsidy.

“Fuel is subsidized in Ethiopia. But in our neighboring countries, there is no such trend where the government subsidizes heavily. The price of fuel in Ethiopia is almost less than half compared to our neighbor countries. Therefore, there is a scramble to smuggle out fuel from Ethiopia to neighboring countries, via borders. The low price in Ethiopia is the major pushing factor for fuel contrabands,” added Mulugeta.

Ethiopia spends USD 2.3 billion annually on average, importing 3.8 million metric tons of petroleum products. The Ethiopian Petroleum Supply Enterprise, which is the sole fuel importer, delivers the fuel to distributors whom in turn supply to station owners. In addition, fuel distributors and retailers have been complaining about the profit margins slated by the government as thin.

Under the fuel contraband system, fuel is first transported to border towns, where many have more fuel stations than their population needs. For instance, the ECC found fifteen fuel stations at Hartshek, a small town on Somali border, where the town’s population does not exceed 15,000. Currently, Moyale is also one of the major routes for fuel contrabands.

Once stocked at border towns, the fuel crosses into other borders through different mechanisms. There are fuel companies that operate both in Ethiopia and in neighboring countries, which leads to fuel trucks crossing from Ethiopia to another country, carrying the contraband fuel. If not, barrels are also used to transport the fuel.

Even though the contraband of fuel has decreased, the Baro River in Gambella region is being used to smuggle out fuel from Ethiopia. Fuel barrels are being carried by boats, and Jerry cans are common.

Currently, a national strategy is being designed to stop the cross-border fuel contraband. Regional states are studying the fuel demand in each city and town and the demand assessment will then be cross-checked for exaggerations. Once the demand is identified, fuel will be supplied to all regional towns and cities, based on quota.

Apart from fuel, other items like agricultural commodities imported and supplied to stabilize the market will also be distributed based on quota.

A new platform is established to coordinate the new strategy, comprised of Ministry of Transport, Revenue, Trade, Agriculture, and others, apart from the ECC.

Apart from the quota based system, cargo tracking systems and pipelines are also being considered.

“The ultimate and predictable approach to completely cutout the fuel contraband is transporting fuel using pipelines,” said Mulugeta.

The government is revising fuel price for privately owned vehicles. The price eventually will match the prices in neighboring countries markets, thereby rendering the incentive for fuel contrabands.

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