Companies engaged in the distribution of petroleum products are persuading the government to make adjustments on the fuel sales profit margins.
Currently, the oil companies and dealers earn one percent sales margin from each litter of fuel sold to customers. The oil companies are complaining that the margin is the lowest in Africa affecting the profitability of the companies and discouraging investment in the industry. Major industry players such as Total, National Oil Company (NOC) and Oil Libya are pressing the relevant government bodies to revise the fuel profit margins companies earning from the sale of petroleum products.
At a press briefing held on Thursday during the inauguration of a new state-of-the art fuel depot built by Total Ethiopia in Dukem town at a cost of 270 million birr Jerome Deschamps, Executive vice president Total Africa Marketing and services, revealed that major industry players are holding discussions with the Ministry of Mines, Petroleum and Natural Gas, Ethiopian Petroleum Supply Enterprise and the Ministry of Trade on the possibility that the government could push the profit margin to two or three percent. Deschamps said Ethiopia has the lowest distribution margin in Africa adding that the second lowest margin is six times higher than that of, Ethiopia. “The margin is very thin and we are trying to bring the matter to the attention of the relevant government bodies,” he said.
Lassina Toure, Managing director Total Ethiopia SC, said that the one percent margin in Ethiopia is minimal when compared to the ten percent margin companies earn in other African countries such as neighboring Kenya, Uganda and Zambia. According to Toure, Total has commissioned a study on sales margins in Africa to a reputable international consulting firm. The study has been finalized and sent to various Ethiopian authorities including the Ministry of Finance and Economic Cooperation and the Ministry of Mines, Petroleum and Natural Gas. “We are willing to have further discussions and we hope that something will be done very soon,” Toure told reporters.
Deschamps explained that the meager profit margin is making investment in the petroleum distribution industry challenging. “It is the fuel distribution companies that invest on service stations, fuel depots and tanker trucks. The Ethiopian economy is growing very fast. The economy is growing at a rate of seven to ten percent every year. The fuel market is growing at the same pace 7-10 percent yearly. To cater to the growing fuel demand the distribution companies have to make additional investments on service stations and depots. But today we are not in a position to invest as much as the market needs because of this margin issue.”
According to Deschamps, Total has invested one billion birr in Ethiopia in the past five years and created more than 1,000 jobs for Ethiopians. Other industry players are also investing and creating jobs. Each service station on average creates job opportunity for 30 citizens.
However, Deschamps said with the existing thin profit margin the oil companies would not be able to make additional investments and meet the growing demand.
“Sooner or later, we will have an issue if we are not going to have a higher margin because simply we will not be able as an industry to invest in stations and depots required meeting the growing demand which is growing at a rate of 7-10 percent a year. At the end of the day the country’s supply chain will get sick. But we do not want that to happen. That is why we are actively engaged with different government bodies. We hope that a win-win solution and way out will be found by the government authorities.”
Deschamps noted that if the government increases the price of fuel by 0.8 birr per litter, the sales margin could be equivalent to that of the region’s average margin. “In that case the industry will have the capability to build 300 stations in the next five years and create 10,000 jobs. The solution is there. If you push the profit margin to two, three percent, it is a mutual interest of the country and the industry,” he said.
In related developments, fuel adulteration has triggered a grave concern in the fuel distribution industry. Executives of Total claim that the recent kerosene shortage that hits some cities in the regions as well as Addis Ababa was caused by fuel adulteration.
Kerosene, which is subsidized by the government, is used for cooking by low-income societies mainly in rural areas. The price of kerosene is cheaper than that of gas oil and gasoline, at least three birr lower than the price of gasoline and gas oil as the government subsidizes the product. To take advantage of the subsidized product, some individuals including fuel station owners blend kerosene with gas oil or gasoline.
“We unfortunately have noticed some tricky games played on kerosene. Some players blend kerosene with gasoil and gasoline to take advantage of the three birr price difference. The kerosene is used by fuel adulators and is no longer available for the poor. That is why you are noticing the shortage in the market. It is a big area of concern. The rules are not respected. They are not abiding by the law,” Deschamps told reporters.
Toure on his part said that the illicit traders are fattening their pockets without paying tax. He said the blended fuel is a bad product that damages vehicles and inflicts harm on the environment. “And we must remember that the fuel is imported with hard earned foreign currency. It is imperative that the government should tackle fuel adulteration,” he said.
To curb the fuel adulteration, Total has introduced an initiative dubbed “Fuel Doctor.” Under the initiative trucks equipped with fuel inspection gadgets are dispatched to different parts of the country to randomly gauge the quality of the petroleum products sold at Total fuel stations.
“We check the quality of the fuel at different stations in Addis Ababa as well as in the regional cities. If there is any issue Total will take measures. This practice can be replicated in the industry,” Toure said.
“Some competitors sell more kerosene than gasoil. How is that possible? This shows that there is an issue. But it is not our intention to blame x or y. We explain the matter and it is the government authority that needs to deal with the issue,” he said.
Established in 1950 Total Ethiopia S.C today operates 173 service stations across the nation. With a contracted fleet of more than 500 tanker trucks the company distributes 700 million liters of petroleum products yearly. The company claims to have opened more than 8000 direct and indirect jobs in Ethiopia.