Radar | Jun 30,2024
Sidama Regional State is gripped by a severe fuel shortage, forcing regional officials to confront a thriving parallel market and deep-seated issues within the petroleum supply chain. Despite state interventions, industry experts and distributors questioned the effectiveness of proposed solutions and called for clarity on responsibility and oversight.
While fuel availability has improved over the past few months, the parallel market has grown increasingly bold, with benzene prices soaring to 150 Br a litre, over 60pc higher than the official price of a little over 90 Br.
During a recent meeting, Seharla Abdulah, director general of the Petroleum & Energy Authority (PEA), conceded to the shortage.
"The situation has become beyond our control," she said.
According to Seharla, rampant illicit activities were plaguing the fuel sector. The Authority has attempted to crack down on the illicit trade, seizing fuel logistics operations in the parallel market. Over three days last week, authorities confiscated 13,000 litres of benzene valued at over one million Birr, impounded 15 vehicles allegedly involved in illicit logistics, closed three gas stations, and apprehended 28 individuals.
Yet these efforts appear to have done little to stem the tide.
Bekelech Kuma, communication director for the PEA, disclosed that gas stations in the regional state received 430,315ltrs of benzene from November 14 to 19, delivered in nine rounds by seven distributors. According to her, retail inspections are the responsibility of regional authorities, who have set their daily requirement at 110,000ltrs. Yet fuel shortages persist at the 57 operational fuel retailers.
Amid Ahmed, the regional security bureau's communications head, blamed "individuals with sole interest in profiteering" for fueling the crisis.
The parallel market continues to flourish in the Sidama Regional State, where illicit fuel sales are not new, acknowledged Selamawit Mekuria, head of the regional trade bureau. However, she blamed a combination of illicit trade and questionable practices at some gas stations for exacerbating the current shortage. A temporary task force, comprising representatives from the regional transport bureau, gas stations, distributors, and the trade bureau, has been established.
Regional officials have also mandated the installation of security cameras in all gas stations by the end of the month, enforcing a law passed last year. However, these measures may be insufficient to address systemic problems within the fuel supply chain that continue obstructing progress. One major issue is the absence of a digitised payment and logistics system, which has created traceability problems.
Fuel stations routinely contact the PEA, making up to 30 to 40 calls daily to inquire about the status of their fuel orders.
"There's a lack of clarity about order acceptance or rejection due to payment problems," said Seharla.
According to her, the confusion impedes efficient distribution and opens the door to malpractice.
Ethio telecom has proposed integrating payment verification into the Fuel Supply Chain Management System (FSCMS), an ordering platform used by stations, suppliers, and the Ethiopian Petroleum Supply Enterprise (EPSE) under the PEA's oversight. The integration tracks gas stations with outstanding payments through cash or credit systems, ensuring confirmed orders are fulfilled.
Distributors, who met last week at Skylight Hotel, on Africa Avenue (Bole Road), voiced their concerns about the proposal. Their misgivings about TeleBirr's dominance, the mobile money platform operated by Ethio telecom, was apparent, fearing it undermines their credit relationships with banks. Gas stations often use diverse payment methods facilitated through distributor credit, sometimes for periods exceeding a month.
"We need to incorporate companies that extend credit to gas stations into the digital system," said Shimelis Shewaqena, from the National Oil Company Ethiopia (NOC).
In June, the Ministry of Transport & Logistics mandated digital payments for retail and wholesale fuel markets. TeleBirr dominates the fuel transaction market with a 96pc share, having transacted 306 billion Br involving 1,700 gas stations and 1.1 million vehicles, including three-wheelers.
Nedaj, a competitor app in fuel retailing, backed by the Commercial Bank of Ethiopia (CBE), has recorded 6.03 billion Br in transactions. However, it is not currently integrated into the management system and could be sidelined if TeleBirr's integration proceeds.
"We haven't received any requests to update our application and link it to the system that controls wholesale trade," said Bersufekad Getachew, CEO of Eaglelion System Technology Plc, the software developer behind Nedaj.
While Ethio telecom seeks to expand its share of the wholesale fuel trade, the Authority has broader ambitions. Seharia and her legal team have drafted a bill on petroleum products marketing, which is slated for a public hearing this week. The bill defines the obligations of operators in the petroleum sector, including gas stations, distributors, EPSE, carriers, and direct users. It also mandates that all petroleum product transactions be conducted through a digital payment system authorised by the Authority.
Industry players have voiced concerns about the bill.
According to Efrem Tesfaye, a board member of the Petroleum Distributors Association, theft starts at the calibration stage, where the volume of petroleum fluctuates. He is concerned about omitting temperature checks, a crucial factor impacting volume. Temperature-related volume discrepancies could lead distributors to lose up to 1,000ltrs of benzene a truck, costing up to 95,000 Br on average. Citing the international standard of conducting handovers at room temperature, Efrem urged adherence to global best practices.
"We need modern solutions to prevent theft at the calibration stage," he said, stating that calibrated meters are exposed to tampering and modification.
There are 58 companies in the petroleum value chain, far more than the four well-known international companies that served the market for decades before the permit requirements were relaxed. Prospective companies in the value chain are required to build and operate four gas stations with a half-million-litre depot.
Industry operators like Ephrem attribute the rise in illicit fuel trading to the low barrier of entry. They lobby the authorities to raise the entry requirement to 10 stations and a two-million-litre depot.
Others in the industry remain optimistic about the bill's potential impact.
"The new legislation will effectively address the industry's problems such as adulteration," said Ketema Sileshi, general manager of Africa Oil.
Adulteration involves mixing low-priced petroleum products with other fuels. According to Ketema, the recent liberalisation of the foreign exchange market and subsidy reduction have restrained fuel smuggling to neighbouring countries. He hopes that the penalties to be legislated will deter illegal activities and protect legitimate traders.
The bill imposes harsh penalties on transporters who knowingly allow illicit transportation. They could face jail terms of three to seven years, as well as vehicle and product confiscation. Individuals storing or selling petroleum products outside designated areas or in unauthorised containers may have their products seized, face up to three years in prison, and face fines ranging from 50,000 Br to 100,000 Br.
However, even those upbeat about the bill acknowledge the need to refine the fuel supply chain management system.
According to Ketema, there are two critical drawbacks. The system cannot limit transactions between buyers and gas stations, allowing for overcharging based on vehicle capacity. It also lacks real-time visibility into fuel stock levels at stations, relying solely on information provided by the stations themselves. He urged the implementation of better calibration technology at stations to accurately monitor stock levels and the integration of vehicle plate numbers into the digital system to limit overselling and combat illicit trade.
For Serkalem Gebrekristos (PhD), an expert with two decades of experience in the petroleum supply business, allowing distributors to leverage partnerships among existing players would enable them to secure a safety stock of half a million litres without the need for multiple depots, reducing costs and avoiding idle capital.
"This approach could discourage adulteration and facilitate the consolidation of oil companies into fewer, and more reliable interests," he said while advocating for the EPSE to ensure a seamless flow throughout the value chain, stating the potential for adulteration associated with numerous depots.
Serkalem, a former CEO of Dalol Oil and founding commercial manager of NOC, cautioned against the Authority being granted overreaching and overburdening power, such as being mandated to grant construction permits for fuel stations. Beyond the immediate concerns of fuel shortages and the parallel market, he observed critical oversights in the proposed legislation including ambiguity surrounding fines for selling above-regulated rates and the repeated offenders clause, which is open to interpretation.
According to him, the legislation lacks giving attention to lubricant blending as well as the marketing of liquified petroleum gas (LPG). He also points to lacking considerations for a “Land Abandonment Certificate” for discontinued fuel stations which involves an environmental assessment, removal of underground storage tanks, soil testing, and proper documentation to ensure the land is safe for future use.
"There's an urgent need for clarity and coordination to address the complex issues facing the fuel sector effectively," Serkalem, currently a regional representative for Habitable Energy Solutions Africa, told Fortune, pointing to a potential conflict of roles between the Ministry of Trade & Regional Integration and the PEA.
Editor's Note: This article was updated from its original form on November 27, 2024.
PUBLISHED ON
Nov 24,2024 [ VOL
25 , NO
1282]
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