Inefficient Transportation

Inefficient Transportation Creates ‘Benzene’ Shortage

Recently it has been common to see a long queue of vehicles around petrol stations in Addis Ababa searching for fuel, particularly gasoline, commonly known as ‘benzene’. People including taxi drivers and other private vehicle owners run here and there filling up their tanks if they get lucky. The lineups near the stations have exacerbated the high traffic jams that are already annoying people throughout the city.With the much publicized economic growth in the past decade and huge federally funded infrastructure projects, like the Ethiopian Great Renaissance Dam along with new railways, the need for increased fuel supply is crucial and consumption has been rising every year. To make fuel distribution more efficient the Ethiopian Petroleum Enterprise and the National Petroleum Depot Administration merged in July 2012 to form a new entity, The Ethiopian Petroleum Supply Enterprise (EPSE) that would be solely responsible for purchasing and supplying the nation’s fuel, while at the same time maintaining a reserve supply of 15 days. EPSE has 13 depots, throughout Ethiopia, and two branch offices, in Djibouti and Sudan.
After the two enterprises merged, petroleum products, the country’s second largest commercial energy resource, increased immensely. Data from the EPSE shows that in 2012/13 alone, the country imported 2.3 million MT of petroleum products at a cost of USD2.19 billion. Unlike previous years, the volume of imported petroleum products showed a 13.3Pct increase when compared to the prior year. This is higher than the 6Pct increase observed in the 2008/09 fiscal year, which is the largest spike ever registered.
Officials at EPSE pointed their fingers at issues with transportation and distribution of petroleum products, for the recent gasoline shortage rather than a supply deficiency. “The problem has nothing to do with the supply of the commodity; it occurred due to failures in transportation and distribution,” Kumera Baissa, head of the Planning and Organizational Service at EPSE told EBR.
Logistics and transportation difficulties have been the major challenges in Ethiopia’s import and export trade. This now is being seen in fuel transportation. Petroleum is perhaps the most critical commodity because of its far-reaching impact on the overall fate of the country’s economy and people’s everyday lives. After the crisis, the Ministry of Trade (MoT) summoned stakeholders to work on a solution but the meeting ended in a stalemate.
To begin with, oil retailing companies aren’t content with their profit margins from selling fuel. In the consultative meeting they held with officials at MoT, they raised their dissatisfaction about profits as a primary grievance. As the costs of running the business and the investment capital went up their profit margins from selling oil went down. Despite the fact that domestic retail prices of petroleum products are adjusted monthly, in line with oil price movements on the world market, the profit margin they earn from each liter of petroleum they sell has decreased, even when compared to the profits they used to earn over the past thirty- forty years. Currently, oil retailing companies in Ethiopia earn a profit margin ranging between four to 10 cents per liter on average. With this small profit they get by retailing petroleum products, oil companies barely survive. To keep afloat they rely on the small profit they get from selling lubricants alongside their fuel, a business manager at one of the oil companies told EBR, on conditions of anonymity. “That is why the multi-national oil companies are exiting from the business,” he added.
Ethiopia purchases petroleum products from two sources; bilateral agreements with foreign governments and international auctions for private oil companies. Currently Ethiopia buys petroleum products from the Kuwait Petroleum Corporation and Sudan through these bilateral agreements. Meanwhile, Bakri International Energy Company limited of Saudi Arabia and Independent Petroleum Group of Kuwait are private supplies of the commodity. Ethiopia imports much of its gasoline (benzene), the plan is to import close to 75 Pct, from Sudan. The remaining benzene and jet fuel comes from Kuwait, both from the government owned company (Kuwait Petroleum Corporation) and from a private company based in Kuwait (Independent Petroleum Group). Diesel oil is purchased from Bakri International Energy Company limited of Saudi Arabia.
But the primary challenge for the current shortage of fuel is the shortage of trucks to transport it from the port of Djibouti or Khartoum, that then haul and distribute the commodity all over the country. One possible solution would be adding new trucks to the existing fleet. However, to import trucks incentives are needed. It can’t be profitable to import trucks without any incentives on duties and taxes as well as credit facilities; many transporters have told policy makers. The government currently is giving no transportation incentives as currently banks are prohibited from providing credit services for importing trucks or their spare parts. Neither does the government give any incentives on duties and taxes for importing trucks.
An official at MoT hopes that the railway, which is under construction, will alleviate the challenge in the near future; using the available trucks efficiently and effectively is the choice at hand. “With efficient use of the trucks and better logistical management, such as faster loading and unloading of trucks, it is possible to solve the problem,” he says.
Logistical issues concerning where and how to use the trucks have aggravated the already existing squeeze on available trucks that has contributed to the supply shortage. Truck drivers who previously transported fuel from Khartoum used to be content because they could bring extra fuel at cheap prices from subsidized Sudanese retail stations to sell at Ethiopian border towns making a good profit and earning extra money to supplement their income. Truckers delivering oil from Sudan would fill up their tankers with extra petrol along the Sudanese border. Sudan subsidizes its gas so there was a huge price difference between the petrol purchased in Sudan and Ethiopia. By driving into Sudan almost ‘empty’ and filling up at the border they could fit as much as 1,500 litres of petrol in their huge gas tanks. Then, simply by crossing the border they could sell their gas in Ethiopia at a substantial profit.
Recently, however Sudan prohibited truckers from taking out any more fuel than the authorities deemed necessary to get back home. This stopped drivers from greatly subsidizing their income and it made them angry. “This disappointed drivers and it made them stop doing their job properly – transporting oil as fast as they could,” says an official at the Ministry of Trade (MoT). Truck drivers would look for other ways to make up for the lost income. According to the official from MoT they would stopover in out of the way places, or they would not make runs as often per month as before. This made an already existing shortage of trucks worse and reduced the amount of fuel that could be transported to gas stations. Then some of the larger oil companies with more resources began promising truck drivers extra benefits such as loans to import additional trucks or exclusive work along the more convenient and comfortable Ethio-Djibouti corridor, or the opportunity to transport Jet Fuel which takes less time to load and unload, in return for their exclusive loyalty to the larger oil company. This encouraged drivers transporting benzene from Sudan to break their contracts with their former clients and go to the new companies. Zakarias Wolika, Sales and Marketing Manager at Oilibya told EBR that this has hurt the company very much. He called on the government to intervene and stop the unfair competition.
An officer from another oil company however refutes this. He says that truck transfers from one company to another are not a new phenomena. At times many trucks have switched companies at the same time. The officer recalled one incident when many trucks were laid off from business his company made contracts with them after they were checked for standards without compromising safety.
Samson Demelash, LPG Business Manager at National Oil Ethiopia (NOC) told EBR, though the current state of affairs has not significantly affected NOC, he stresses the need to establish a capable infrastructure and efficient means of transportation to satisfy the country’s fuel demand.
Abay Gebremedhin is a driver who owns a 50Pct share in a truck he uses to transport fuel. He is well acquainted with both routes from Djibouti and Sudan because he’s been driving them for the past nine years. The benefit of owning or driving a truck has been consistently diminishing, he observed.
“With the skyrocketing price of spare parts and tyres transportation is not a business you would wish your friend to get into,” he told EBR. “Buying tyres for 17,000 birr and then adding to that the cost of spare parts and fuel expenses; earning the gross 38,000 birr for a round trip means almost operating at a loss,” he adds.
“It is true that I still work the Sudan route despite the fact that some benefits we used to take advantage of to compensate our personal expenses are banned, but honestly now my friends and I are looking for better opportunities. I think people would understand if they realized the situation we were in, so many of my colleagues are looking for better opportunities and if I get one, certainly I will do the same,” he said.
Truckers switching loyalties also had another consequence. Trucks must be calibrated by MoT when they make contracts with new clients. It takes time and sometimes trucks don’t return back to duty for quite a while. This made the truck shortage even worse.
This shortage encourages the transaction of fuel illegally from one place to another. Because Addis Ababa hosts economic and diplomatic leaders it is given preferential treatment over other parts of Ethiopia when it comes to supplying fuel. As petrol supplies have dwindled, people have begun putting fuel in barrels and jerry cans, mischievously collaborating with retail station employees in Addis Ababa to sell them at higher prices in remote areas. This has aggravated the shortage of fuel in Addis Ababa.
In addition, the problem was exasperated, especially in Addis Ababa, due to the construction of mega projects such as the light railway and other roads; as well infrastructure projects sponsored by the Addis Ababa City Administration. Although close to 130 fuel stations are operating in the city more than a few of them are not giving services, forcing vehicles to wait in long lines around the stations that remain open.
Petroleum in its different forms – gasoline (petrol) for cars, diesel fuel for trucks, jet fuel (kerosene) for airplanes and other lubricants is a critical commodity for any country. It is vital because the disruption of its supply and inappropriate distribution will result in chaos and disorder, negatively impacting the economic and political state of a nation. Ethiopia spends over 50Pct of its total export earnings to meet the Nation’s fuel demand. There is hope that the transportation issues can be alleviated but modern history shows an oil crisis is not affordable, especially to a nation on the move. EBR

2nd Year • March 2014 • No 13

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