Dalol Oil S.C., one of the local private oil companies, is currently negotiating with unidentified investor to sell 22 million Br worth of shares having a par value of 1,000 Br in its bid to recapitalize itself amidst tough operating year. Reporting a full year profit of 400,000 Br for the fiscal year which ended in December 2016, Dalol’s profit, however, represents a fall four times lower than the year earlier.
The decline in profit is justified by an increase in provision held for receivables in credits and operational challenges due to shortage of foreign currencies to open letters of credit to import lubricants. The margin of profit from fuel remains insignificant in the oil industry, whose imports and distribution is tightly controlled by the federal government. Oil companies rather make their money from imports and retail of lubricants; Dalol Oil retails Petromin lubricants, imported from Saudi Arabia.
However, the business of oil and lubricants is capital intensive; and Dalol’s paid up capital has been stagnant over the past two years at 42 million Br, indicating lack of potential for more income. Named after the lowest point found in Afar Regional State, Dalol was first established in 2012, after closing its first initial public offering (IPO) collecting 80pc of its 64 million Br subscribed capital. It is now the remaining unpaid capital, worth 1,000 Br for a share, up for sale to the investor, according to company officials.
But the mood during its fourth general assembly meeting, held at Genet Hotel on January 14, 2016, was one of dissatisfaction, with the board of directors and external auditors bearing the burn of much of it. Some shareholders even went as far as expressing their doubts over the operational existence of the company.
Operations at Dalol in the preceding fiscal year were disappointing to many of them: Its assets decreased by 26pc to 173 million Br; revenues declined by seven percent to 950 million Br; and its general and administration expenses climbed by 14pc to almost 10 million Br. A shortage of working capital also indicated directors’ and shareholders’ dissatisfaction. Dalol has had to operate in an economy where there was an acute shortage of foreign exchange and loan, according to the report of the board of directors.
“The shortage deters us to participate in big projects,” said Dereje Walelign, board chairman, who was also one of the major and founding shareholders of the company.
During the last year, a lower amount of foreign exchange was mobilized in the exchange market. All of the commercial banks traded about 12.7 million dollars in the inter-bank exchange market, 13pc lower than that of 2014/15. A week ago, Prime Minister Hailemariam Desalegn told parliament that the forex shortage will continue in the next two decades.
Some shareholders see the slump in earnings as predictable, given the problems that exist.
“Achieving such a performance in such conditions is difficult,” a shareholder commented.
Besides the forex crunch, accumulated credit collection was also one challenge of the company. There was a large amount of money uncollected from some of the company’s three petrol stations that are owned by shareholders, which was cumbersome during the credit collection. An uncollected credit of 29 million Br from Tidhar Excavation & Earth Moving Ltd was also a challenge for the company last year. In August 2015, the company won a court case against Tidhar, when the Federal High Court ordered the latter to pay nearly 40 million Br in summary procedure.
“We won the case a year ago,” said Gebreamlak Gebregiorgis, one of the board of directors. “But we haven’t received the full payment from Tidhar yet.”
The court placed an injunction on Tidhar’s assets after the Federal Ethics & Anti-Corruption Commission accused the company and its General Manager, Menashe Levy, of corruption. As a result, Dalol is still waiting to recover 29 million Br from Tidhar.
Dalol has 14 filling stations of its own and is one of the seven companies engaged in the supply of petroleum at the national level. A month ago, the company appointed Tadesse Girma as its new CEO after the departure of Serkalem G. Kirstos, the former CEO of the company. Tadesse has decades of experience in the industry and previously worked at Kobil and Total.
“My first priority will be collecting the credits to consolidate liquidity,” said Tadesse while describing his strategy to improve the Company’s profit issues.
Last year, Dalol’s cash and bank balances plummeted by three-fold to over six million Birr, owing a large amount of uncollected money.
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