Ethiopian Gas Stations, Price and Profitability

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Addis Ababa, September 22, 2017- Ethiopia has registered a double-digit growth for the past few years. New infrastructure and developments can be noticed in every corner of the East African nation. For this development, it needs the modern day elixir for wealth: oil.

The East African country is estimated to spend more than 3 billion USD to import petroleum products and that consumes 6% of its annual GDP. With a trade deficit of about 50pc, that is without doubt one of the highest expenditures of the country.

Ethiopia’s domestic consumption of petroleum fuel has been increasing year on year and recently an estimated 3.0 million cubic meters per year have been imported to the country. Although this seems like the petroleum industry is a profitable one, gas station owners say that is not the case.

Petroleum is bought by the Ethiopian Petroleum Supply Enterprise and distributed by several companies, private and governmental. It is after this process that fuel reaches gas stations and ultimately to consumers. When the gas finally reaches customers, it is sold at a price set by the Ministry of Trade, which has been known to revise prices based on several affecting factors.

  Fuel Distributing Companies and their number of Stations,2013    
  Company No. of Stations
  TOTAL 173
  OIL LIBYA 158
  NOC 140
  YBP 104
  KOBIL 50
  TAF 24
  NILE 16
  WAS 10
  DALOL 7
    682
  Source- EPSE Report,2013

 

The price set by the Ministry is often very different from that of what is seen internationally. This is as a cause of Ethiopia purchasing crude oil as opposed to refined oil as well as purchasing a mass amount for a period of six months instead of a shorter period of time.

The government also allows subsidies for times when fuel price has been higher than usual, and when prices go down, it takes the advantage to keep the price at the same level with the slight profit to make up for the subsidies.

However, this method is causing grievances among business owners who say that their income is severely affected by the government’s stringent rules. The profit margin for a retailer to sell per liter is a mere 7 cents, if a gas station sells a big number of 15,000 liters, the profit will be around 1,050 birrs.

The government revised the profit margin for the first time in 40 years in February, 2015 when 3 cents was added to the original number. However, the earnings are still dismal. This has discouraged from investment heading into the venture as starting a gas station would need roughly a 20 million birr startup.

The low number of available gas stations in Ethiopia, only 700 within the entirety of the country as of 2016, is attributed to these reasons.

The low prices have also been one of the major reasons for illegal activities like adulteration and theft to flourish. During the long ride from Sudan or Djibouti, there are several known locations where drivers are suspected to take a certain amount of gas from the tank and pass it off as undetectable as the heat makes the level of the gas rise.

Until last February, 2017, when the government made the price of kerosene equal with gasoline, it was quite a common practice to mix the two for a higher profit. Before those days kerosene price was cheapest due to the subsidy intended to help low income people for household consumption and to help deter deforestation. The subsidy on fuel was estimated at Birr 1.5 Billion per annum.

Laboratory tests done by EPSE on fuel samples taken from many retail stations in the country confirmed that domestic purpose Kerosene was widely mixed with Gasoline (petrol) and Diesel (Naphta) by way of adulteration from 25-40 pc (highest recorded amount of 70 pc), with sample failures rising from 50 pc in 2002 EC to 59pc in 2005 EC.

The lack of proper legislation to catch these outlaws made the practice all the more preferable, with profits rising from 0.7 cents to a 4.18 birr profit per liter in gasoline. With deterrence a long way off, the temptation was too great.

“I was once asked to dump kerosene and Diesel into the same container, in broad daylight” an anonymous truck driver said “I called and informed my superiors as I am aware of the damage that causes, but they too, did not have that much they can do.”

A manager at a private oil distributor says she had to tried to manage this by refraining to sell kerosene to vendors known to take part in this act, but after a while, it becomes counterproductive to hog your own product from sale.

However, the price of kerosene was revised to be equal to the price of gasoline, rendering the point of adulteration useless. So now, it seems the only other way to guarantee a big profit is through theft.

Locations identified in the supply chain that is well known as sites for in-transit adulteration and theft along Djibouti corridor are; Galafi, Awash, Metehara, Wolenchity, Nazreth, Modjo and Zeway states the Technical Committee Report on Product Adulteration and Short Deliveries, EPSE. However, very little deterrence is applied even when the areas are known.

Although it is inexcusable to engage in crime and use profit as a scapegoat, the profit margin is too small to actually seek honest work. It is quite unappealing even for moguls such as that of Shell and Agip who jumped ship and left the country, mainly because of small profits.

This seems to have forced gas station owners to either branch out and have a car wash, supermarket or a café on their premises or simply procure stolen gas.

“I am currently looking for a way to buy and sell tires,” says a gas station owner who didn’t want to be named, “otherwise I can barely feed my workers. The only part of the gas station that is actually returning income is the small supermarket and the car wash.”

 

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