Africa Oil Plc has five of its stations denied fuel supply by the Ethiopian Petroleum Supply Enterprise (EPSE). The company had requested over a million litres of fuel, but its requests have been unfulfilled.
The four-year-old company has 42 new stations under construction with five completed at a cost of hundreds of millions of Birr, including those in Jemo, Tuludimtu, Jigjiga, and on the road to Arbaminch, according to Ketema Sileshi, general manager at Africa Oil. The lack of fuel supply has rendered these stations idle and the investments are at risk.
“Millions of investments have been left in the air,” Sileshi lamented.
His company, operating 92 stations nationwide, had planned to expand its market share and supply underserved regional states with its new stations. However, the current fuel quota system, based on existing stations and transaction volume, has limited his company’s supply to 10 million litres less than its monthly demand of 27 million litres. Ketema argues that increasing the number of fuel stations will boost productivity.
“New stations are there to meet the demand, not create more demand,” he said.
In a move that has incited outcry and apprehension, EPSE officials have suspended the supply of fuel to new stations. The decision comes as the Enterprise seeks to double down on cutting fuel imports. A letter issued by Esmelealem Mihretu, CEO, comes after a board meeting discussed plans to halt the supply of fuel to new stations awaiting certification and those that are also currently under construction. “It goes against national policy,” the letter reads.
Esmelealem noted this comes as the country intends to decrease fuel import expenditure, and transition to electric vehicles, with a reduction of fuel importation by 4pc targeted for the year. He stated that the supplier plans to gradually reduce fuel imports upon economic activity and electric vehicle uptake.
“We have no plans to supply the new stations,” he told Fortune. “There is no need for that anymore.”
He argued that there should be a priority to sufficiently serve the existing stations.
The federal government has been promoting the adoption of electric vehicles (EVs) to reduce fuel import costs. A ban on importing petroleum-powered vehicles was implemented, and import taxes and duties for EVs were reduced. Imports of EVs have nearly doubled from three years ago, reaching 72 million dollars in 2022/23.
However, uncertainties remain regarding the country’s power infrastructure’s capacity to handle a rapid transition to EVs. Energy expert Yemanebirhan Kiros notes the current power grid may not be sufficient for the increased demand and cites the transition from biogas to electric cooking as an example that led to overloaded power lines and constant outages. He stated, “There is no sufficient power supply”.
Yemanebirhan says the high demand from industries and manufacturing companies to transition to EVs is hindered by the lack of adequate electrical infrastructure. The expert urges the government to implement regulatory overhauls to improve efficiency, increase tariffs to encourage investment from energy companies, and establish legal frameworks. He believes that “ensuring energy efficiency first is crucial.” The lack of a regulatory framework also affects issues like electricity tariffs and the standardization of charging equipment. Ketema stated that “it’s unthinkable right now,” due to the lack of infrastructure. The vast majority of vehicles on Ethiopian roads continue to be petroleum-powered.
Many areas in Ethiopia, including Benishangul Gumuz Regional State, are facing severe shortages. In the Kamashi zone, comprising five districts, there is not even a single fuel station. Though rich in coal, gold, and marble, the zone has relied on fuel supplies from Wollega in Oromia Regional State. Security issues have disrupted this supply chain, limiting the zone to a mere 90,000 litres of petroleum every two months.
“Fuel stations are desperately needed ,” said Tariku Kumera, deputy head of the Benishangul Gumuz Trade Bureau. The entire region currently operates with only 16 gas stations in Assosa and Metekel zones, and the supply to these stations has been declining recently. The new fuel supply restrictions could further exacerbate the situation, as eight new stations under construction in the region may now face delays or cancellations. Several investors have already abandoned their projects, while others are complaining to authorities about the fuel shortage.
“The shortage of fuel is affecting investment,” he said.
OMA Mining Plc, a joint venture between Ethiopian and Sudanese investors, ceased operations after 12 years due partly to severe fuel shortages in its Guji and Assosa operations. Dereje Demisse, a former operational manager, partly attributed the company’s closure to the lack of gas stations and the undependable fuel supply in the region.
Dereje, now managing a marble manufacturing company operating for over three years in Harer Regional State’s Mareo district, continues to face fuel shortages. They must travel 70km to another district to acquire 700 litres of petroleum per week.
Kassahun Goffe (PhD), minister for Trade & Regional Integration, recently admitted to a fuel shortage but stated that the government’s strategy still focuses on reducing fuel imports. “We need to better administer the existing fuel stations, not add more,” he stated.
The Ministry has drafted a proclamation to control illegal practices in the petroleum supply and distribution value chain. The daft law mandates fuel transaction payments to be made digitally. If approved, new distributors will have to have a depot that can store at least half a million litres of petroleum products and four fuel stations to commence operation and should construct additional six fuel stations within three years. Existing distributors will be required to have 10 fuel stations within five years.
The state-owned EPSE serves 1.5 million vehicles across the country, with a daily supply of three million litres of benzene and 8.5 million litres of diesel. The Enterprise has distributed 986,795tn of fuel in the first quarter of this fiscal year.
Research conducted by the Petroleum & Energy Authority (PEA) exposed a critical fuel shortage across the country. The study revealed that 500 districts lack even a single fuel station.
Bekelech Kuma, the Authority’s communication head, says that some border areas with Kenya and Somalia have an excessive number of fuel stations, describing them as “lined up like a retail shop.” This has facilitated illegal fuel trade across borders, especially considering the higher tariffs imposed by neighbouring countries, according to her. However, due to the ongoing fuel shortage, the Authority has been approving the construction of new gas stations while being wary of opening stations near borders.
While critics have questioned the EPSE’s authority to implement such rules, the supplier has defended its position, saying it was a decision made by higherups.
“It’s the first time we are reading the letter,” Bekelech revealed. She told Fortune that EPSE did not consult with the Authority in making the decision.
Gambella Regional State is another region gripped by a severe fuel shortage. Ambisa Udeta, head of the regional Trade and Industry Bureau, revealed that certain districts like Dima, Abobo, and Lare as well as the outskirts of Gambella City do not have a single gas station. He said there are 12 gas stations in the regional state currently under construction whose fate is uncertain due to the move by EPSE. The region has approximately 14 stations, primarily NOC, Total Energies, TAF and Ola Africa Energy branded outlets.
Ambisa stated that the districts are gold exploration and production centres and require sufficient fuel supply. “Benzene shortage has been the main problem in the region,” he said.
Ephrem Tesfaye, a board member of the Ethiopian Petroleum Dealers Association (EPDA), a 500-member lobby group, believes that contraband and inefficient distribution have exacerbated the existing fuel shortage. He views the government’s recent decision to limit fuel supply as impulsive, as it could negatively impact reputable fuel retailers.
“It was a quick decision made without proper consultation,” he said.
There are over 52 new fuel stations under construction, awaiting competency certification. Several other stations have received PEA approval and are pending final approval from the EPSE. The sector comprises 59 companies operating 1,880 stations, with the big four of TotalEnergies, NOC Ethiopia, OLA Energy, and Yetebaberut Petroleum (YBP) taking the lion’s share.
The two-decade-old Yetebaberut holds 140 stations. It is facing a dilemma for its several new stations in the pipeline.
Biniyam Aklog, the general manager of the company, stated that their construction of over 10 new stations has been hampered by the recent fuel supply restrictions. The company, which primarily operates in the outskirts of Addis Abeba and regional states like Oromia, Amhara, and Tigray, is expanding with ongoing projects in Somalia, Oromia, and Dire Dewa that are now at risk.
However, Biniyam is hopeful that the decision will be reversed. “We understand where they are coming from,” he told Fortune. He says existing stations often receive only 15pc of their daily fuel orders. The company’s daily demand of 4.8 million litres of gasoline and diesel is barely met.
Tadesse Grima, secretary-general of the Ethiopian Oil Companies Association (EOCA) attributes the fuel shortages to insufficient supply and inadequate distribution. “The balance between demand and supply has not been met,” he said.
According to Tadesse, given the country’s vast territory and reliance on petrol as the primary energy source for vehicles, the current number of stations is insufficient to meet the demand.
A few months ago, the National Bank of Ethiopia (NBE) enlisted private banks to shoulder a substantial portion of the foreign currency needs for fuel imports, a role previously tightly controlled by the state. Governor Mamo Mihretu, instructed them to open letters of credit for fuel imports beginning next month with 11 commercial banks taking up the offer with payments due 360 days from the issuance date.
The NBE estimates that 3.2 billion dollars in letters of credit will be issued annually to import fuel, with private banks expected to contribute close to 1.6 billion dollars.
The current subsidy allocation of 100 billion Br, part of the 551 billion Br allocated for essential commodities, has helped alleviate economic pressures on the enterprise. “These new reforms are helping us attain a better supply of fuel,” Esmalealem said.
However, shortages still persist. Horizon Petroleum Terminal at Djibouti’s Doraleh Port which has a storage capacity of nearly 400,000 cubic metres and pumps around 2,000tn an hour has seen disruptions.
Esmalealem reported that the fuel shortages are being addressed through technical solutions at the Horizon terminal, and that efforts of expanding transportation corridors to other borders, such as Sudan, are underway.
“The fuel supply chain is extremely fragile,” he told Fortune.
Minister Kassahun, who recently addressed the parliament, indicated a potential shift in fuel trade policy. He suggested allowing private companies to enter the market alongside the state-owned enterprise.
Derese Kotu, a fuel industry expert and former PEA distribution head, says there is widespread fuel smuggling, particularly in Somali Regional State.
However, he argues that the suspension will affect underserved and peripheral areas. He suggested a proper control to be in place to curtail and close down illegal stations, rather than limiting the expansion of stations.
He criticized the current fuel distribution system, stating that older companies which often focus on urban areas and neglect underserved regions receive preferential treatment. “This needs proper reform from authorities,” he told Fortune.
He attributed shortages to overlapping regulatory mandates, an uncontrolled illicit market, and limited supply availability with some stations receiving only 15pc of their demands. While advocating for a transition to renewable energy, he acknowledged the need to bridge critical infrastructure gaps. He suggested that authorities should control the distribution market and open new stations while closing those near borders.
“We are not ready to halt supplies yet,” he said. “Regulations are more pertinent.”
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