Ministry of Trade and Industry (MoTI) is set to change the arrangement of petroleum sales for the oil companies onto cash bases.
At the current situation, Ethiopian Petroleum Supply Enterprise (EPSE) supplies the product on one month credit for the oil distributing companies.
However, it has been a challenge for the sole petroleum supplier public enterprise with regards to its cash flow and some of the distributors continue to delay their installment which ought to be paid on time.
According to the information Capital obtained, the government has decided to change the distribution arrangement for different reasons. The new approach has been also discussed with oil companies a week ago, and is set to take effect in the second quarter of 2021.
On the new arrangement, companies should pay in advance to access the fuel. Thus the new arrangement will be a relief for the public enterprise company. However, newly joining distributors may face the financial constraint to pay for the product in advance.
According to the new scheme sources told Capital, at the initial stage companies must come up with ten percent cash and the balance with a bank guarantee bond. “The percentage of cash will grow in process and fully cover the total expense of the purchase within a year,” a source explained.
Tadesse Hailemariam, CEO of EPSE, said that his enterprise does not have the mandate on the new arrangement since it has a tariff issue.
“Regarding the petroleum pricing and impact of tariff the mandate is for MoTI,” Tadesse added.
He clarified that the upcoming arrangement will implicate a tariff change since companies are supposed to come up with cash that they amass in different instruments including bank overdraft or loan with interest rate that will be additional cost for companies, “Due to that it is the mandate of the Ministry to emplace such decision.”
Sources said that the bank guarantee will also have service charges that may vary on interest rate from bank to bank and between customers.
However, Tadesse confidently said that the new arrangement will improve the enterprise’s cash flow and working capital.
“It will also cut the hassle that occurs when companies default to settle their payment on time,” he added.
The petroleum is now being supplied in a month credit but companies’ mainly new entrants abused the system, which forced EPSE to manage the case on legal battle.
The CEO said that the companies that recently joined the market are focused on the credit scheme than operating prudently. “The long existed companies and dominant market players on the sector are loyal and efficient compared with the new comers,” The CEO stated.
Currently 36 companies are engaged in the distribution of petroleum products in Ethiopia, while it has been stated that only one third of them are loyal to settle the credit on time.
Ethiopia, at the moment, is a net importer of petroleum products. White and black petroleum products are imported directly by EPSE through third party suppliers. Upon receipt from third party suppliers, EPSE stores the products at Horizon Terminal in Djibouti and then distributes the different grades mainly Gasoline (Benzene), Gas Oil (Naphta), Kerosene, Light fuel oil, Heavy fuel oil and Jet fuel to oil companies through a fixed margin structure set by the government that revised the rate about two years ago.
In addition, EPSE imports Gasoline (Benzene) from Sudan. On average the country petroleum demand grew by ten percent every year like the economic growth and consumed about USD 3 billion, which is equivalent with Ethiopia’s commodity export. “Due to the COVID 19 effect the import has slow at the current stage,” Tadesse said.
Fuels pricing and revisions are made by MoTI on a monthly basis. Lubricants and greases, however, are being directly imported by the oil companies with less margin control unlike petroleum.