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BusinessGov’t upholds embargo on fuel distribution licensure, halts construction of new pumping...

Gov’t upholds embargo on fuel distribution licensure, halts construction of new pumping stations

Officials cite unaddressed illicit cross-border trade

A number of investors awaiting permits to open gas stations or embark on ventures in the fuel distribution business are left hanging as the government extends an embargo on the licensing of petroleum-related businesses.

On May 9, 2024, the National Fuel Reform Steering Committee reaffirmed its decision to uphold the embargo, which it had originally enacted three months ago. The committee is composed of officials from the Petroleum and Energy Authority, ministries of Trade and Transport, Ethio telecom, and the Ethiopian Petroleum Supply Enterprise.

Sahrela Abdulahi, director-general of the Petroleum and Energy Authority, says the embargo came following an assessment that found that the number of fuel stations and distributors in the country has surged unexpectedly in recent years.

She disclosed that a committee formed to conduct the study recommended a pause on the granting of new licenses and permits to distributors or for the construction of new gas stations.

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The decision was reviewed again earlier this week, and the authorities have decided to uphold the suspension for an indefinite period of time, according to the Director-General.

She told The Reporter that concerns over the construction of fuel stations for alleged purposes of conducting illicit trade are the primary reason behind the suspension. Sahrela indicated an increase in contraband fuel trade.

The deterrence of cross-border illicit trade is among the key targets of the fuel reform committee, which officials say is carried out partly by licensed distributors and fuel station operators. The committee is also tasked with bringing fuel prices in Ethiopia on par with those in neighboring countries. Despite the de-subsidization implemented over the last few years, prices are still lower than in markets like Kenya, where a liter of benzene retails for the equivalent of 84 birr. 

Sahrela stated that the committee has reason to believe that gas stations are being erected in remote and sparsely populated rural areas, including areas near borders, with the intention to use them as a base for the alleged illicit cross-border trade.

“Fuel companies built the stations in remote areas to facilitate their contraband trade in neighboring countries,” said the Director-General.

She accused fuel stations of not meeting tight international standards, and disclosed that the Authority is introducing new standards specifications for gas stations in collaboration with the Ethiopian Standards Institute.

The new rules introduce specifications for tanker capacity and quality, proximity of gas stations to other pertinent facilities, canopy standards, and other requirements regarding safety. It also includes training requirements for staff.

“Our primary target now is to enforce the new standards on the existing fuel stations. Once this is finalized, we might consider awarding licenses to new distribution companies and approval for the construction of new fuel stations,” said Sahrela.

The Director-General says future prerequisites for permits and licenses will be more strict, with the authorities pledging to grant licensure based on national and economic interest.

“There are woredas that do not have any fuel stations at all. We’ll approve the construction of new stations based on the significance of economic activity in these woredas,” said Sahrela.

Prevailing standards oblige station operators to have a capacity of storing at least 500,000 liters of fuel, but Sahrela says existing stations do not meet the requirement. They are also required to build at least two facilities with the minimum storage capacity to obtain a permit.

“Some have obtained licenses by installing small tankers horizontally,” said the Director-General. “We’re auditing their facilities.”

She disclosed the Authority’s new standards will double the storage threshold to one million liters.

The new rules are included in a draft ‘Fuel Control Proclamation’ that has been submitted to the Office of the Prime Minister for review, according to Sahrela. She says it took more than a year to write up the draft, and she expects it to be tabled to the Council of Ministers, and then Parliament, for ratification in the near future.

However, players in the petroleum business attribute the contraband problem to the government itself.

“Why would the government sell fuel to companies that open fuel stations in remote areas where there are no residents or business activities in the first place?” asked the manager of a fuel company who requested anonymity.

Fuel accounts for a large part of Ethiopia’s import bills, registering at close to USD 6 billion last year.

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