Government adjusts oil profit margin
To establish oil distribution supervisory authority
The Council of Ministers on March 2 approved a proposal for a slight increment on the profit margin oil distribution companies and dealers earn from the sale of petroleum products.
The Ministry of Trade and Industry (MoTI) announced that it has made an increment for oil companies and fuel transporters. In a meeting held with oil companies, dealers and transporters on Monday,officials of the Ministry said that they tried to address the concerns of oil companies and fuel transporters. The MoTI on average made an increment of 5-6 cents on the profit margin oil companies earn from the sale of litres of petroleum products. The ministry also made 10-15 percent increment for fuel transports per kilo meter depending on the type of roads.
Oil companies have been complaining that the profit margin set for oil companies and dealers is the lowest in Africa adding that this discourages investment in the sector. However, the oil companies are not happy with the recent profit margin adjustment. “It is insignificant,” CEO of one of the international oil companies told The Reporter. “How long are we going to subsidize the local industry? We are not charity organizations. We were supposed to make profit and make investments in the local oil industry. But we are making investments and getting no investment return,” the CEO said. “The issue is not only about companies’ profitability. But it is rather seriously affecting the oil distribution sector and the overall economic activity,” he added.
TadesseTilahun, CEO of National Oil Company and chairman of the Ethiopian Oil Distributors Association told The Reporter that the oil companies are dissatisfied with the minor increment that the Ministry has made. “It is a very marginal increment. It is far below what we have been proposing. The oil distribution sector has been facing many challenges and the recent increment would not solve the problem,” Tadesse said.
According to Tadesse, the association requested a meeting with the Minister of Trade and Industry, FetleworkGebreigzabher, to officially present their complaints. Tadesse declined to further comment on the issue.
An owner of a local oil company also told The Reporter that the increment is minimal. However, he said; “Small amount is better than none.” “They may consider the challenges that we are facing and make another round of increment after a year or so,” he said.
In related news, the Ministry is planning to establish a supervisory authority that would regulate the oil distribution sector. The new regulatory body which would be accountable to the Minister would supervise the Ethiopian Petroleum Supply Enterprise and all the downstream activities including the petroleum supply and distribution work.
Sources told The Reporter that GirmaBirru, a veteran politician, and an economic adviser to the Prime Minister is one of personalities behind the ongoing economic reform. “He is the one who is trying to rescue the dying oil sector,” they said. “If the government does not overhaul the oil distribution sector it will have a serious repercussion on the economy. Oil transporters were on go slow strike. Oil companies are descaling their operations. These are worrisome developments,” they added.
There are 26 oil companies operating in Ethiopia and only five of them are foreign firms. The oil distribution sector is marred by illicit trade, adulteration and sabotage that often lead to artificial fuel shortage.
With a population of 100 million, Ethiopia has only 800 gas stations while neighboring Kenya with 40 million people has over 2000 gas stations. More than 2500 gas stations operate in Uganda. There are only 100 gas stations in Addis Ababa, a cosmopolitan with over 460,000 registered vehicles. According to industry experts, transporters do not have cargo tracking system and the fuel tankers at the gas stations are not automated making them prone to theft and adulteration. “The low profit margin contributes to the growing contraband trade. We do not understand how the government fails to realize the gloomy picture and take appropriate measures,”they added.
The Ethiopian Petroleum Supply Enterprise annually imports four million metric tons of petroleum products valued at three billion dollars.