Influx Of Fuel Business License Requests Prompts Investigation

The National Fuel Reform Steering Committee has launched a probe into what it says is an unusually large number of businesses applying for permits to operate gas stations and distribute fuel products.

Despite an embargo on new fuel distribution and pumping station operator permits enacted four months ago, officials say there are a significant number of businesses and individuals interested in acquiring the permits, with most applying with the intention of operating in remote, sparsely populated parts of the country.

Government officials suspect the developments are tied to an illicit cross-border fuel trade. They allege illicit traders use remote gas stations as a base for contraband trade with buyers in neighboring countries, where fuel prices are lower than in Ethiopia despite the government’s lifting of subsidies over the last couple of years.

A liter of benzene in Kenya, for example, sells for the equivalent of 90 birr. It is more than 10 percent higher than retail prices in Ethiopia.

“Fuel companies built the stations in remote areas to facilitate their contraband trade in neighboring countries,” Sahrela Abdulahi, director-general of the Petroleum and Energy Authority, told The Reporter last month.

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The contraband fuel trade was also the subject of a round of parliamentary discussions earlier this week. Lawmakers are readying to ratify legislation that would tighten restrictions around the opening and operation of pumping stations.

The ‘Petroleum Products Marketing’ Proclamation will raise thresholds for acquiring a license in the fuel business. The draft looks to compel distributors to operate fuel depots capable of storing a minimum half a million liters of fuels and build no less than 10 pumping stations to acquire and maintain a license, among other requirements.

The proclamation slated for ratification looks to address issues such as hoarding, adulterating, illicit trade, and smuggling within the petroleum industry. It will not apply to oil exploration, refinery works, or distribution.

Existing distributors and players in the fuel trade have lashed out at the legislation for what they argue are unrealistic investment expectations. The experts behind the proclamation, however, argue the fuel business is capital intensive and entrants must be able to meet minimum thresholds.

Meanwhile, the Steering Committee has initiated a comprehensive investigation into the surge in requests for permits to establish petrol stations, and the Ethiopian Standards Institute and the Petroleum Authority have prepared a new range of standards that must be fulfilled by any business looking to build a pumping station.

The ‘Requirements for Liquid Fuel Station Facilities’ comprise a wide range of specifications listed across 29 pages. Among these are a minimum fuel station size (2,000 square meters) and a requirement to install an underground storage tank with a minimum size of 50 cubic meters for each petroleum product sold.

Sources familiar with the petroleum industry told The Reporter that the state-controlled trade faces viability issues. Although fuel is necessary in regions with significant population size and economic activity, the high cost or urban land forces the construction of gas stations in less developed and remote areas, according to the source.

Abraham Berta (PhD), a member of the Committee, observes recent fuel shortages have led to a proliferation of makeshift unlicensed retail shops for petroleum products. He criticized the construction of gas stations in areas where there is no demand for fuel as “unfair,” and warned that legal provisions allowing the sale of fuel in barrels or other containers in areas without stations opens the door for illegal trade.

“When we ask the relevant parties why they are not being monitored while building oil stations in the southern region, the response is often to create job opportunities,” said Awoke Ambaye (PhD), another Committee member.

The proclamation also lists various penalties for crimes related to the petroleum trade, with some offenses punishable by up to seven years of imprisonment and the seizure of petroleum products. The crimes that carry the most stringent consequences are smuggling into a neighboring country, transporting petroleum products outside of an approved distribution route, and unloading outside of an authorized unloading facility.

“Deliberately mixing petroleum products with foreign substances and offering them for sale” is another crime punishable by three to seven years, according to the draft.