Wednesday, January 18, 2023
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BusinessDelayed profit margin adjustment frustrates petroleum dealers

Delayed profit margin adjustment frustrates petroleum dealers

The delay of the long awaited profit margin adjustment to gas stations frustrates owners as the government fails to implement the revised rate. A directive allowing for up to a five-percent profit margin was approved last January but remains ineffective.

The dealers have been working on a profit margin of 0.23 cents a liter before. However, after the approval of the directive by the Ministry of Trade and Regional Integration, they hoped the adjusted profit margin would be applicable with the gradual lifting of fuel subsidies by the authorities.

Managers of the Ethiopian Petroleum Dealers Association, a lobby group gas station owners founded, say authorities turned a deaf ear to the repetitive pleas of members.

Explaining how the running cost for a gas station spiked over the course of the year following the repetitive fuel price increases, Henok Mekonnen, chairperson of the Association, claims that his members have no more interest in the business.

“Members are totally displeased with their work. Some are even mulling closing their shops. There had been several discussions, but to no avail. We can’t work on promises anymore,” Henok said.

Last year, a dealer needed about a million birr to offload a truck of fuel, but this amount has been increasing drastically each time the country raises fuel prices. When the government was about to embark on the second phase of lifting the fuel subsidy before the end of September, the amount of money needed was about 2.3 million birr, which now stands at 2.8 million birr.

Almost all of the dealers are required to pay in advance, except the dealers for a company or two. Taking loans to cover this working capital is what the dealers have been doing, making the cost of running the business higher than the earnings made from the business, according to Ephrem Tesfaye, board member of the Association.

The Association, for its part, has been in contact with the Ministry, conducting discussions and participating in studies initiated by the Ministry. Last August, the Ministry, through the Petroleum and Energy Authority, called on gas stations to provide information to conduct a study to raise the profit margin.

Two months prior to that, the Association had written to the Ministry requesting an increase in the profit margin to at least 1.20 birr a liter, citing that the directive approved at the beginning of the year had not come into effect.

For Ephrem, such unresponsiveness from the government could also be a reason that pushes some dealers to engage in illegal trade for higher benefits.

“There are some of us working legally on the price the government sets, and there may be a few of them selling at higher prices locally and even smuggling to neighboring countries,” he said, hoping for a reform in the sector.

Another board member of the association and gas station owner in Addis Ababa and Sebeta, Oromia Regional State, Desalegn Abebaw, says he is also losing interest in the job himself. “I’m weakened by the high amount of money needed for working capital. If the profit margin isn’t increased until the fuel price is revised next time, many will definitely be out of service.” 

The disinterest by new investors in the sector is also explained by the low profit margin, according to the management of the association. Of over 1,200 gas stations in Ethiopia, only a little less than 1,000 are functional. But countries like Kenya have about 1,900 gas stations while Uganda has 2,900.

Members of the Association are planning a general meeting to come up with a decision to push for action by the Ministry as their next move. “We will appeal to higher officials, including to the Office of the Prime Minister, should there be no action soon,” Ephrem told The Reporter.

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