Fuel Gauges read Empty: Oil Market Declines; Consumers Pay the Price

With the global price of oil declining, local stations across Ethiopia are reluctant to reduce prices and incur losses. Ultimately, the consumer is the only loser. Fortune staff writers JEMAL ABDU AND LUCY KASSA go to the pumps to speak to fuel consumers and retailers to find out more.

Ahmed Mohamed, 27, is an assistant driver of a heavy truck which transports ethanol, coffee and wood from Shakiso, Bale and Jimma. He was at Kobil oil station’s Gotora branch at 7pm in the evening, very tired and irritated by the long hour queue at the oil station. He was close to getting into a fight with another driver because of queue cheating. His vehicle consumes 60 litres of petroleum, worth 1,100 Br per day. However, since December 9, 2014, his car stopped functioning due to the petroleum shortage throughout the city, making him lose over 6,000 Br of daily income.

“Since morning, I have been searching for fuel but I could not find any in the two Total and NOC stations that I went to. This is the third station where I have had to wait in line,’’ he said shaking his head with frustration.

Following the decrease in the international market price of fuel, the local price of oil was adjusted, and many stations, in fear of the loss they could encounter, failed to pick up the fuel that the Ethiopian Petroleum Supply Enterprise (EPSE) bought from Sudan, Saudi Arabia, and Kuwait.

“We have bought enough fuel to supply the demand, according to the projection we made. The problem is not with the supply, but with the reluctance from distributors to pick up and distribute to the stations they have, because of their fear of absorbing the loss,” says Demelash Alemu, assistant to the CEO of EPSE.

The enterprise has been supplying fuel to the local market as the only body that buys fuel from four international suppliers like the Sudanese Sudan Petroleum Corporation and KPG from Kuwait, and sells to the nine distributors in the country. The nine distributors in the country are Oil Libya, Total, National Oil Ethiopia (NOC), Yetebaberut Beherawi Petroleum (YBP), which account for the 89pc of the total fuel distribution in the country and Kobil, Dalol Oil S.C., WadiAlsundus, a Sudanese Company, and TAF oil S.C., which account for the remaining 11pc.

The recent historic decline in the international oil price, since the 2008 global economic crisis, is significantly affecting the Ethiopian market. At the time, the price of oil was 76 dollars, dubbed a historic low. This year, the average price of oil peaked in June at 111.8 dollars per barrel, which declined to 97 dollars in September. Now the international price of oil stands at 62.5 dollars.

During the 2008 global economic crisis, the daily consumption of oil in Ethiopia declined from 45,595 barrels per day, to 42,329 barrels in 2010, while global consumption was 87.8 million barrels a day.

The four major distributors in the country are NOC, Oil Libya, Total and YBP. They distributed 190,836 metric tonnes of benzene and 1.36 million metric tonnes of diesel in the 2013/14 fiscal year. But this number is not showing in the local market, as there is no fuel in a lot of the stations in the city, leading many to wait in long lines of vehicles at filling stations.

Surafel Fikru, 23, is a taxi driver. He was in his minibus until the long queue was over at the Total gas station of the Beklo Bet branch.

“I have gone to two Oil Libya stations, two Total stations and one NOC gas station in search of petroleum today. But none of them had any. The supply shortage has impeded my taxi from giving service for two days and has made me lose over 400 Br a day,’’ he told Fortune.

As there were some stations in the city that refused to sell fuel from their stock, the Addis Abeba Trade & Industry Bureau closed 11 stations, according to Amakele Yimam, the Ministry of Trade’s corporate communication directorate director.

“Although the ministry has made adjustments on the price of fuel, considering transportation cost, port rent, insurance payment, and the profit of oil companies and stations, following the fall in the fuel price in the international market in November, the oil companies and stations were not willing to bring the fuel from the port on time, in order to avoid the risk of loss,” says Amakele.

The MoT believes that the problem will be resolved in two days, as there are 200 trucks that are en route to deliver petroleum. But this does not appease the people gathering around filling stations. One of these people, Yonas Tesfay, a retailer of shoe and leather products, is seen resentful of the gas loss. He said that a shortage of gas occurs every month, but due to the recent supply decrease, he loses 5,000 to 10,000 Br a day.

“The reasons the stations give me for the crisis is that there is less fuel delivery,’’ Yonas says.

Yonas Mekbeb, manager of the gas station at the Temenja Yaj Total branch, attributes the shortage to the fall in the international fuel market.

“In my seven years of experience in the market, only once has the price of fuel decreased, apart from the recent decline. This kind of problem also happened only once when drivers’ refused to drive to Djibouti after one driver was killed on the way,’’ Yonas remembered.

Since last week, when the shortage occurred, the station Yonas manages had closed for two days, due to the fact that he finished his fuel reserve. Under normal circumstances, the average amount of gas ordered from the head office was 25,000lt every four days. Currently, however, this amount is ordered per day.

The price regulation had forced fuel stations to sell the gases below the intended market price planned when imported. Since the new price arrangement, a 10,000 Br loss was experienced by the Temenja Yaj branch of Total, which is 5,000 Br for benzene, 4,000 for naphtha and 1000 Br for kerosene, according to Yonas.

Similarly, Aklilu Genet, 26, an employee at the NOC station of Beklo Bet said that his station has lost 20,000 Br because they are below the intended price, which was planned at the import stage.

Kerosene is the only abundant fuel found in every station, but it is not used in the operation of vehicles.

The liquefied petroleum gas (LPG) Business Manager at NOC distributor, Samson Demelash, says that there is no supply shortage on the side of NOC. NOC has maintained its supply, surpassing 89pc from its plan, although this has not translated in the NOC stations in the city.

Samson says that there are not enough gas stations in Addis Abeba to accommodate the growing number of vehicles, and additional stations are essential.

The Marketing Manager of Oil Libya, Eshetu Zeleke, confirmed the supply shortage on his side, while explaining the reason for the shortage. He said that the decrease in the market price creates expectations. Accordingly, this expectation creates fear of purchasing more stocks in retailers, because they want to avoid the loss after the price adjustment of the government. In addition to the distributors, the stations also do not want to order in case prices decrease.

Eshetu also recommended two measures for the government to take to reduce the loss endured by oil companies. One is to use a planned announcement if there is continuous decreases in price, which gives prior notification and sufficient time. The second solution is to allow the stations to sell at their intended sale price until the already purchased gas is finished.

But this is unthinkable, according to the MoT, as it might cause another problem in the market.

“We have agreed with distributors to suddenly announce the fuel price adjustment in order to avoid improper benefits from the stock that stations have,” says Amakele.

The government makes price adjustments of gas every month. With the current adjustment, the government has made four price adjustments on fuel prices in 2014. In September 2014, the price of benzene was 20.47 Br a litre. This price reached its peak of the four at 20.99 Br a litre in May. Then when the global market showed a decrease, the price went down to 19.95 Br a litre, as adjusted in November. The price now stands at 19.41 Br a litre, as of the December adjustment.

The price of diesel is 17.49 Br a litre, falling from the last month’s 18.09 Br a litre. The peak price for benzene in the four 2014 adjustments is 19.00 Br.

The current price adjustment has regulated the price of naphtha, to be sold at 17.49 Br from 18.09 Br. Similarly benzene and kerosene are arranged to be sold at 19.41 Br, down from 19.95 Br, and 15.40 Br, down from 15.50 Br, respectively. The price for a litre of each kind of gas six months ago was 19 Br for naphtha, 20.99 for benzene, and 16 Br for kerosene.

Fortune staff writers

Published on December 14, 2014 [ Vol 15 ,No 763]



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