Ethiopia LPG and petroleum feasibility

Table of content
Pa ge Title I. II. Executive Summery Background of the document Overview of Ethiopia Overview of Energy sources and energy policy in Ethiopia Overview of Ethiopian policy towards to LPG, Kerosene and other related by products III. Market Analyses
Nature and size of demand for petroleum products Project ownership and structure Proposed Location Past Demand Forecasted Demand Supply & Distribution Types of Products Target customers Competitors Analysis Marketing
No 1 2 2
8 10 10 10 11 11 12 13 14 15 15 18 19
IV.
Regulations, Licenses and incentives (Legal analysis)
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Draft Feasibility Study for Distribution of petroleum, LPG and Lubricants throughout Ethiopia HASS PLC
Regulatory Requirements License Pre-Qualification for License
19 19 19 20 20 21 21 21 22 23 23 24 27 28
V.
Environmental Analysis
Location of the project Environmental analysis
VI.
Financial Analysis
Initial Project Costs Expansion Project Costs Price of Fuel Risk on investment for Petroleum investment Income statement
VII. Conclusion VIII. References
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1. Executive Summery The purpose and scope of this feasibility study is to assess the feasibility of distributing LPGs, petroleum and related products and lubricants like: Diesel Engine Oils, Petrol Engine Oils, Gear Oils, 2 stroke, Engine Oils, Brake Fluid, Hydraulic Oils and Industrial Gear Oils throughout Ethiopia as whole seller and retailer. In addition to the provision of Fuels, Lubricants, other specialized products like Modern Car wash, Lub change, Supermarket, Cafes and Restaurant Services will be implemented by outsourcing to others. The project feasibility will form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, marketing, and finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. The report divided in to nine parts with annex and reference. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. And as much as possible we used the most trusted and recent sources for the study. The HASS petroleum Group is a regional Oil marketing company, incorporated in 1997, with significant presence in East Africa and Greater Lakes region. From its beginning as a fuel seller, HASS petroleum is now a renowned Oil Marketer with full fledged in Kenya, Tanzania, Uganda, Southern Sudan, Rwanda, Burundi, and the democratic Republic of Congo. And in 2013 it will start in Ethiopia after the legal and investment activities finalized. The initial cost of the project is estimated to be 84,600,000birr_ with a payback period of 4 years and 6 months. IRR and NPV of 29%and birr 121,847,000 respectively. Version Control Type of Document Feasibility study for LPG , Kerosene and related supplies
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Prepared by Grace Consultant Version 1.0 Issue date May 30, 2012 Revision Date May 31, 2012 2. Background of the document a. Overview of Ethiopia Ethiopia is an independent republic which lies in the north-east corner of Africa and forms part of the North East African Region. The capital city is Addis Ababa, headquarters of the Organisation of African Unity (OAU). Since the secession of Eritrea in 1993, Ethiopia has been a landlocked state. The official language is Amharic but other languages like English and Italian are used in commerce. The local currency is the Ethiopian birr.
The Ethiopian economy is based on agriculture, which accounted, in 2009/10, for about 42 percent of the gross domestic product (GDP), 75.9 percent of foreign currency earnings. In 2009/10, the industrial sector, which mainly comprises small and medium enterprises accounts for about 13 percent of GDP. The services sector accounts for about 46.1percent of GDP.
Real GDP grew by an average of 11.3 percent per year for the last Seven consecutive years (2003/04-2009/10), which is the highest among the non-oil producing economies of Africa. During 2006/07, 2007/08 and 2008/09, the general annual inflation was 15.8, 25.3 and 36.4 percents, respectively, and dropped to 2.8 percent in 2009/10. These were largely driven by the trend of the food component of price which showed 21 percent annual average growth during the indicated fiscal years. The budget deficit as a percent of GDP was only 1.3 percent in 2009/10
The Ethiopian economy has grown stronger as the transition from a command to a market-based economy takes place. The former system of price controls has almost been discarded, the tax rates have decreased, and several private sector restrictions have been removed. Progress has been made on the implementation of reforms. Valued Added Tax was introduced in the country in January 2003 and the import tariff regime has been reformed. The financial sector is also improving, with flexible interest and
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exchange rates that are market-determined. Ethiopia belongs to the COMESA agreement. Member countries enjoy preferential trade terms. Ethiopia has similar agreements with a number of countries and the EU.
In the Growth and transformation plan (GTP Plan), the government expected to boost the real GDP from 10.1 to 14.9 percent. Projection of export of goods assumed to grow at a faster rate in response to the adoption of export promotion policy measures. According to the GTP plan for the five years, exports of goods are expected to grow by 36.6% in 2010/11 and 28.4% percent annual average in the remaining period. With regard to transportation, in 2015, all Kebeles (100%) will connected to all weather roads with an average time of 1.4 hrs to reach nearest all-weather road .
The National Bank of Ethiopia is the central bank of the country. Commercial banking functions are performed by the state-owned Commercial Bank of Ethiopia (CBE) and an increasing number of private banks . The number of banks operating in the country reached seventeen: three of them government-owned and the rest private (NBE home page).
The Ethiopian tax law provides for the imposition of direct and indirect taxes. The direct taxes are divided in to five categories: personal income tax, rental tax, withholding tax, business profit tax and other taxes. The main types of indirect taxes applicable are value added tax, custom duty, excise tax and turn over taxes.
Ethiopia has abundant supply of skilled workers in various fields at internationally competitive rates. Wages and salaries vary on the type of profession and level of skill required. They are determined by agreement between the employer and the employee. In conformity with the international conventions and other legal commitments, Ethiopia has enacted its labor law to ensure the worker-employer relations be governed by the basic principles of rights and obligations with a view to enabling workers and employers maintain industrial peace and work in spirit of harmony and cooperation.
The labor law has fixed hours of work as eight hours a day and thirty-nine hours a week. Work done in excess of these hours is deemed to be overtime. Labor disputes in
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Ethiopia are resolved through the application of the law, collective agreements, work rules, and employment contracts. Foreign investors obtain work permits for their expatriate employees directly from the Ethiopian Investment Agency (EIA). The EIA processes applications of work permits in an hour.
All transactions in foreign exchange must be carried out through authorised dealers under the control of the National Bank. Payments abroad for imports require exchange licences, obtainable upon presentation of a valid importers licence, exchange licences are also granted in any convertible currency requested. All imports require a licence. There are no free trade zones in Ethiopia.
Addis Ababa, the capital city, is linked by road to the port of Djibouti, at the Gulf of Aden. The port of Berbera in Somaliland and Port Sudan are other external trade routes that provide services for export-import trades of the country. Another potential port accessible to Ethiopia is Mombassa in Kenya. In order to ensure efficient, cost effective and reliable import and export movement of cargo to and from the sea ports of neighboring countries, the government has established the Dry Port Service Enterprise. The Enterprise is currently operating two dry ports which are located at Modjo, in the Oromiya Regional State, and at Semera, in Afar Regional State.
b. Overview of Energy sources and energy policy in Ethiopia

Ethiopias known energy resources essentially consist of wood fuels, animal dugs and agricultural residues, which are overexploited, and hydropower, which are being exploited,, crude oil which is largely untapped. Ethiopia has proven reserves of fossil fuels in the form of natural gas and coal as well. The energy resource potential of the country includes several hundred million tons of coal and oil shale, and over 70 billion cubic meters of natural gas. However, only a very small portion of this potential is developed owing to lack of financial resources, skilled manpower and more importantly appropriate policy and planning. (GTZ (2007) According to the 1997 World Development Report (World Bank, 1997), the per capita commercial energy for Ethiopia in 1994 was 22 Kilograms (Kg), while for low income economies it was on the average 369 Kg and for high income economies it was 5066 Kg.
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Table: Rural and urban enrgy sources Energy Source Firewood and Charcoal Dung Agricultural residues Kerosene LPG Electricity Sources: GTZ, 1998 Rural (%) 82.2 9.8 8.4 0.0 0.0 0.6 Urban (%) 74.47 7.8 6.3 7.6 0.6 3.0
As you can see from the above table, nearly all the remaining energy needs particularly for domestic purposes are covered by fuel wood, the supply of which has led to a very rapid depletion of the natural forest resources and vegetation cover. Due to frequent usage of fuel wood for energy supply in the country, the forest resource coverage has dropped from 35 percent coverage to less than 3 percent. As a consequence of increased environmental degradation, Ethiopia is facing a cyclical draught and famine. According to the GTP Plan, by 2015 maintaining facilities and construction of the storage for petroleum, the reliable and steady supply of petroleum will be secured. In the next five year it is planned to increase the present generating capacity which is 2000 MW to 8,000 up to10, 000MW at the end of the plan period (2014/15) with electricity power coverage of the country to 75%. In addition by 2015: Increase the production of bio- ethanol to 194.9 million litter at the end of the planning year through coordinating the governmental and private sugar industries, Increase production of bio diesel up to 1.6 million litters through involvement of Private investors, farmers, etc. In general, the development of bio-fuel will generate 1 billion dollar foreign currency, Increase the number of blending facility of benzene-ethanol from 1 to 8 and that of biodiesel to 72 by oil companies. Sea port utilization ratio will reach 60:30:10 for Djibouti, Berbera and Port Sudan, respectively Fuel transportation by Ethiopian ships will reach 3.6 billion ton in 2014/15
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Ethiopia has vast hydropower resources and only a small fraction has been developed. The developable hydropower potential is estimated at 30,000 MW, located primarily along the Blue Nile and its tributaries. Very limited and very few proportion of the population in Ethiopia have access to modern fuels. The per capita modern energy consumption is about 0.02 tones of oil equivalent (TOE), which is one of the lowest in the world(ESMAP-Energy Sector Management Assistance Programme Ethiopia-Energy Assessment Report No. 179/96.)
To initiate production and utilization of potential energy sources, the Government of Ethiopia for the first time has approved a National Energy Policy, which was issued in May 1994. The policy clearly identifies the need for the promotion of private sector participation in the energy sector development. The New Investment Code Proclamation No. 37/1996 and the Amendment Code Proclamation No. 116/1998) further strengthened this initiative. And, for the exploration and exploitation of petroleum resources, which also includes gas resources, the Government has issued Petroleum Operations Proclamation No.295 of 1986, Petroleum Operations Income Tax Proclamation No.296 of 1986 and a Model Production Sharing Petroleum Agreement (1994).
c. Overview of Ethiopian policy towards to LPG, Kerosene and other related by products Ethiopia, at the moment, is a net importer of petroleum products. White and black petroleum products are imported directly by the Ethiopian Petroleum Enterprise (EPE) through third party suppliers. Upon receipt from third party suppliers, EPE 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 and these companies distribute the fuel through a fixed margin structure set by the government. In addition, EPE imports Gasoline (Benzene) from Sudan. For the supply of Gasoline in Addis Ababa, EPE has made an agreement with Nile Petroleum, a Sudanese Oil Company operating in Ethiopia, where the latter conducts blending of Gasoline with Ethanol (E5) at its depot in Sululta (Northern Part of Addis Ababa with 15 KM distance from the center)and distributes E5 to Oil Companies.
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The market is regulated by the Restatement of the Distribution Agreement (DA) which gives the power of supervision to the Ministry of Trade and Industry (MoTI). The authority to set and monitor petroleum product prices and margins is granted to the MoTI through the DA, and the DA also provides for monitoring and related activities of petroleum sector regulations, such as operations, safety and environmental issues.
All of Ethiopias petroleum products is imported. Ethiopian Petroleum enterprise is responsible for the procurement of petroleum products through competitive international bidding on and as needed basis. International oil companies like Total, NOC, Oil Libya handle distribution. These companies in the market are granted an oligopoly in downstream operations by virtue of the Distribution Agreement (DA) and in effect, the companies are self-regulating in many respects. Petroleum, Ethiopias major source of commercial energy is crucial to the functioning and growth of the economy. Ethiopia is also believed to hold a huge potential for energy and mining. The nations current efforts in the areas of hydroelectric power projects and exploration of Oil and Gas are clear testimonies of the governments determination to unleash its natural resources. Ethiopian industry, transport and commercial sectors largely depend on imported fuel. The amount of foreign currency spent for the importation of petroleum products is very significant and it is between 19 to 28 percent of the export earnings (National Bank of Ethiopia, 1999.)
Distribution of Petroleum To date, petroleum products distribution activities are done according to the Restatement of the Distribution Agreements signed periodically between the MoTI and the petroleum distribution companies (whole sellers) like Total, NOC, Oil Libya operating for more than 30 years in Ethiopia. The Government organ that signed the Distribution Agreement and regulates the implementation and overall petroleum distribution operation is MoTI. Distribution Agreement focuses on the process of delivery, supervision, measurement, accounting procedures, price determination, transportation etc.
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The Government is the one that determines the inland wholesale and retail selling prices. According to the Agreement, the Government takes factors such as CIF (cost of insurance and freight) cost of product, transport, duties and taxes, company's marketing expenses, profit and dealer's commission into account for petroleum price determination.
3.
Market Analyses 3.1 Nature and size of demand for petroleum products
Petroleum is one of the most traded items in the world. Petroleum is a necessity product and the nature of its demand is inelastic. Unlike other businesses whose demand is impacted by price and other economic variables, the consumption of petroleum products in Ethiopia continues to increase even in the face of any economic slowdowns. Demand for petroleum products such as Fuels & lubricants in Ethiopia is massively growing at an average rate of 10% over the last five years (since 2004). As of 2009, the overall size of demand for fuels & lubricants amounts 2.5 billion liters and 25 millions liters respectively. Project ownership and structure
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Proposed Location The head office of the company will be Addis Ababa with rented building and leased land for the depo. The two filling stations will be located in the two commercial areas: Akaki Kality Area in which the biggest get with high volume of traffic from and to port Djibouti, Awassa, Harere, Awassa and Arbaminch. The second station will be around Addis Ketema, the second biggest get, which serves Gojam, Gonder and Port Sudan. Other outlets will be opened in Adama, Shahemene, Bahirdar, Wolliso, Nekemitte, Dessie, Mekele, Assosa, Debire Markose and Gonder in collaboration with private retailers.
A. Past Demand According to MOT report due to the increasing price of petroleum, most vehicles currently are Naphta and those vehicle which are using Benze are converted in to Naphta
Inspected and Registered Vehicles by License and Plate Type

Type of License
1. Government 2. Mass organization 3. UN 4. C.D 5. Aid Organization 6. OAU 7. Commercial 8. Taxi 9. Private Commercial 10. Private cars
1999/00 16,081 239 1,015 819 3,794 134 30,851 10,156 9,859 42,258 2000/01 16,611 256 1,001 815 4,280 132 33,311 10,632 10,661 43,858 2001/0 2 17,278 294 954 921 4,219 157 34,995 12,010 11,531 47,905 130,26 4 2002/03 17,070 261 1,056 1,060 4,052 217 34,931 12,506 8,245 53,540 2003/04 17,424 780 1,045 672 4,393 192 36,703 12,395 13,508 58,696 2004/05 20,013 1,657 1,202 1,050 4,384 225 50,046 14,523 14,988 58,221 2005/06 21,581 2,271 1,221 1,099 4,828 250 58,120 20,062 17,263 65,930 2006/ 07 27,365 2,880 1,548 1,394 6,122 317 73,697 25,439 21,890 83,600 244,25 2 2007/08 27,210 3,852 1,386 1,318 6,292 330 81,761 34,282 24,014 89,555 2008/ 09 31,200 4,417 1,589 1,511 7,216 379 93,752 39,310 27,536 102,69 0 309,60 0
Total
115,206
121,557
132,938
145,808
166,309
192,625
270,000
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Sources: Ministry of transport Most oil products are consumed in the transportation sector, which accounts for at least two-thirds of the countrys total petroleum product consumption. The sectoral breakdown is approximately as follows: Transport 69% , Industry 10% ,Households 21% .
B. Forecasted Demand According to Transport ministry, the growth of vehicles is 7% and 9.4% for Minibus and Buss respectively. Based on the above data the forecasted number of the vehicles in the country for the coming 10 years is as follows:
Type of License
1. Governme nt 2. Mass organizatio n 3. UN 4. C.D 5. Aid Organizati on 6. OAU 7. Commerci al 8. Taxi 9. Private Commerci al 10. Private cars
2013
32,448
2014
33,746
2015
35,096
2016
36,500
2017
37,960
2018
39,478
2019
41,057
2020
42,699
2021
44,407
2022
46,184
2023
48,031
4,594 1,653 1,571 7,505 394

102,565
4,777 1,719 1,634 7,805 410

112,206
4,969 1,787 1,700 8,117 426

122,753
5,167 1,859 1,768 8,442 443

134,292
5,374 1,933 1,838 8,779 461

146,915
5,589 2,011 1,912 9,131 480

160,725
5,812 2,091 1,988 9,496 499

175,834
6,045 2,175 2,068 9,876 519

192,362
6,287 2,262 2,151 10,271 539

210,444
6,538 2,352 2,237 10,681 561

230,226
6,800 2,446 2,326 11,109 583

251,867
42,062 29,464
46,015 32,233
190,983 431,528
50,341 35,263
208,935 469,387
55,073 38,578
228,575 510,696
60,250 42,204
250,061 555,776
65,913 46,171
273,567 604,976
72,109 50,511
299,282 658,680
78,887 55,259
327,415 717,305
86,303 60,454
358,192 781,309
94,415 66,136
391,862 851,192
103,290
72,353
428,697 927,503
174,573 396,827
Total
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3.2 Supply & Distribution Ethiopias current refined petroleum products are delivered at the port of Djibouti and Port Sudan and trucked more than 600 KM and more than 1,500KM respectively inland by many tanker trucks that use the road in each direction. Petroleum Consumption : Transport Sector
Quantity in MT
Year
Petroleum Products Consumed in Transport Sector By Quantity Road Transport (Motor Aviation Vehicle) MGR Sub-Total (Motor Gasoil Jet/Kerosene Gasoline Regular)
122,995 135,469 142,526 129,964 133,111 148,555 130,415 146,094 137,193 143,743 139,093 150,099 155,806 141,397 557,640 542,936 548,787 610,835 623,197 679,281 688,527 773,256 811,689 905,478 1,073,148 1,203,567 1,237,922 1,213,751 680,635 678,406 691,313 740,799 756,308 827,837 818,943 919,350 948,882 1,049,221 1,212,241 1,353,666 1,393,728 1,355,149 252,302 238,836 224,177 225,431 259,786 259,630 294,699 334,638 370,401 402,311 482,173 506,497 529,857 558,462
Total Amount of Petroleum Products Consumed in Transport Sector

932,937 917,241 915,490 966,230 1,016,095 1,087,467 1,113,642 1,253,988 1,319,283 1,451,532 1,694,414 1,860,163 1,923,584 1,913,610
1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11
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Source: Ethiopian Petroleum Enterprise (EPE)
Total Amounts of petroleum imported and consumed Year

LPG (Liquified Petroleum Gas) 1997/98 4,401 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 1,283 130,415 146,094 139,093 141,397 150,099 155,806 506,497 529,857 558,462 1,213,751 37,613 137,193 143,743 370,401 402,311 482,173 1,073,148 1,203,567 1,237,922 49,692 36,421 10,714 334,638 773,256 811,689 905,478 43,185 41,521 42,255 142,526 225,431 129,964 133,111 148,555 259,786 259,630 294,699 688,527 40,770 610,835 623,197 679,281 49,149 40,688 41,865 1,304 122,995 135,469 252,302 238,836 224,177 548,787 61,566 557,640 542,936 107,576 96,025
In Metric Tone (MT)
Petroleum Products By Quantity

MGR (Motor Gasoline Regular) Jet/Kerosene Gasoil LFO (Light Fuel Oil) HFO (Heavy Fuel Oil) -
Total
1,044,914 1,014,571 1,033,293 1,077,352 1,137,677 1,223,136 1,244,489 1,407,221 1,478,002 1,610,216 1,882,164 2,013,089 2,035,265 2,050,787
54,954 61,973 80,894 93,804 90,078 110,048 117,198 116,429 138,059 116,506 100,967 99,563
Source: Ethiopian Petroleum Enterprise (EPE) From the total 2,050,787 , 1,913,610 MTR is consumed by transport sector and the remaining by industries and others. 3.3 Types of Products 1. Fuel products: Gasoline (Benzene), LPG (Liquefied Petroleum Gas),Gas Oil (Naphta) and Kerosene ,Aviation fuels (Avgas and Jet A-1) 2. Lubricants, Bitumen and greases.
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3. In addition to the provision of Fuels, Lubricants and other specialized products like Modern Car wash, Lub change, Supermarket, Cafes and Restaurant Services will be added by leasing out our premises to companies that offer these services. Although the company planned to distribute the above product in the first few years of the project, at the expansion stage other related activities like distribution of tier, petrochemicals for paint and detergent will be added. 3.4 Target customers

Commercial and private transport Construction companies Power Generation Agricultural companies Manufacturing :Cement, Metal/Steel, Pulp and Paper, Sugar Mining
3.5 Competitors Analysis Fuels are generally homogeneous products from the same source, transported the same way and are generally sold in a similar manner. The market for fuels is therefore very competitive since product differentiation is closely tied to the marketer's corporate reputation. Therefore our company will identified ourselves as the fuels supplier of choice through our innovative approach to marketing and competitive pricing. Currently, there are very few Oil Companies operating in Ethiopia. The current players are TOTAL, National Oil Company (NOC), Oilibya, Yetebaberut Beherawi Petroleum S.C(YBP), Kobil Ethiopia, Nile Petroleum, Wadi Al Sundus (WAS) Petroleum Ethiopia, and TAF. As compared to neighboring countries, Ethiopia has fewer numbers of Oil Companies with less competition. A case in point is Uganda and Kenya where over 50 independent companies are engaged in the distribution of petroleum products with aggressive competition in the industry. Despite persistent and increasing growth in the demand for petroleum products, the network expansion (the number of outlets being built) and supply by existing Oil Companies is not adequate. Recent trends in the exit of multinational Oil Companies is further weakening the strength of the Oil Industry to service the growing demand of the nation for petroleum products. In view of the current trends in economic growth and governments plan to invest millions of dollars
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in infrastructure, hydropower projects, mining and others sectors, the current gaps between demand and supply in the petroleum sector is wide. Company Address No of Products stations TOTAL NOC Oilibya YBP Kobil Ethiopia Nile Petroleum WAS TAF Dalol Ghion Gas Plc 251 114 163838 / 165757 251-011-2793360 251011-2794771 251-11-4400965/67 +251 11 4674500 / 5 /6 +251 011 465 11 25 Petroleum, LPG, lubricants Petroleum, LPG, lubricants 180 Petroleum, lubricants Petroleum, lubricants Petroleum, LPG, lubricants Petroleum, LPG, lubricants Petroleum, lubricants Petroleum, lubricants Petroleum, lubricants Gas only
One filing station and 220 distributers
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All Products Volume Trend (September. 2010 & 2011)

Libya Oil MGR AGO KERO FFO LUBES AVIATIO N OTHER PRODUC TS 2010 5751
21171
NOC 2010 5692

31490
YBP 2010 1270

12191
Total 2010 5426

29522
Kobil 2010 585

4171
Industry 2010
18724 98545 26623 7921 3377 30558
2011 6076
21321
2011 4466
28547
2011 1192
1020 0
2011 4921
30353
2011 759
3888
2011
17414 94309 27404 7928 2346 30917
6714 726 652 17649
6815 947 275 15244
7502 829 1203 532
7797 1045 666 4970
2863 3472 131 0
2947 3640 97 0
7028 2781 1294 12377
7320 2252 1247 10703
2516 113 97 0
2525 44 61 0
281
318
528
73
128
18
937
409
LPG Distribution in Metric Tone Companies NOC YBP TOTAL KOBIL INDUSTRY 2010 2742 0 1049 0 3791 2011 2895 0 730 18 3643
NB this data does not include LPG distributed by Ghion Gas PLC
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As you can see form the above table, the LPG distribution is pretty low compared to the demand and consumption of other fuel sources like dung, fuel wood and the like.
Why have major International Oil Companies such as SHELL, MOBIL & AGIP have left the Ethiopian Market? There are two basic reasons why these multinational companies are leaving not only the Ethiopian market in Particular but also the African market. First reason is Safety. The stringent operational safety requirements such companies have has made their continual operation in the Africa market very difficult due to increased number of fatalities due to high degree of exposure and unsafe road conditions. Second reason is Shift in strategy Most of the multi-national Oil Companies are engaged in both up-stream and down-stream business. When such companies compare exportation & production with the distribution business, the income from up-stream taker the lions share. Hence they have embarked on a strategy which they call focus on upstream, profitable down-stream As a result, they are divesting their resources from their down-stream business in Africa and expanding their investment into more profitable and emerging markets such as China, India, Indonesia etc.
3.6 Marketing The company will offer retail customers the most convenient ways to fuel through our Service Stations. In addition to cash payments for fuel and other non-fuel purchases, we have innovated various fuel management systems to make fueling at our outlets an enjoyable experience. For the example, we will have special Fuel card and coupon in addition to VISA card. The fuel cards are available to our customers on Pre-paid and Post-paid terms and most of them are enabled for both fuel and non-fuel purchases at our Service Stations. In addition to the comfort associated with the use of our fuel cards as a mode of payment, we will offer irresistible discounts for Card holders. Our excellent customer service, irresistible product offers, competitive pricing and eye catching branding will make us the marketer of choice in all our markets.
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4. Regulations, Licenses and incentives (Legal analysis)

4.1 Regulatory Requirements The legal status of business tends to play an important role in any setup; the proposed petroleum, LPG and lubricant Marketing and Distribution business. The company is assumed to operate on as a private limited company as it is mandatory for an oil or gas company to register as a private limited company. 4.2 License Any company willing to distribute and market Oil and Gas needs to obtain a license from OGRA(Oil & Gas Regulatory Authority). Additionally, license from Explosive department is also required for the proposed LPG marketing and distribution business. OGRA (Oil & Gas Regulatory Authority) issues provisional licenses to technically and financially sound applicants/ parties for construction of works commensurate with their work program, for a period of one year. OGRA inducts reputable third party inspectors to check/monitor compliance with the terms and conditions of licenses. The licenses can be cancelled in case of non-compliance with licensing terms and conditions. Pre-Qualification for License Following requirements are required to be fulfilled for obtaining a license: Pay Order / Bank Draft /- in favor of Oil & Gas Regulatory Authority, as License fee Minimum capital requirements: o 100,000USD for foreign investors o 600, 000USD if in joint venture with local investors Proof of registration of the Company (Company incorporation certificate). Memorandum and Articles of Association. Location of the tentative / proposed site. Financial Competence Certificate issued by a Bank (original and stamped). Minimum Work Program: Number of storage tanks and capacity of storage tanks. Bottling facility capacity. Quantity of LPG to be distributed per day or per month. Identification of areas where distribution& / marketing of LPG is planned. After companies meet the pre-qualification criterias the following criterias should be fulfilled:
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Professional competency papers from ministry of trade & investment. Licensing & regulation kit from the investment office shall be filled Through principal registration the minimum legal competency requirement to be fulfilled are: o 5000m3 tanker o Minimum 6 stations of which two must be ready for functioning and the rest will function within 5 years. o Local investors shall be willing to work in joint venture with Foreign Investors if need arises. However to distribute LPG, establishment of stations is not necessary. With regard to lubricants, companies cannot distribute lubricants alone; it should be along with petroleum in which Pre-Qualification & Qualification requirements should be fulfilled.
5. Environmental Analysis
a. Location of the project The company will have its head office in Addis Ababa. The company will also construct its mini depot in the outskirt of Addis Ababa during its first five years of operation. The company will have carefully identified strategic cities, towns and locations at which its service stations are going to be build. As a strategy, we will focus to optimally invest in trade areas with significant traffic flow and locations, which are convenient and accessible for motorists. In addition to the traditional channel of providing service solely through service stations, the company will also introduce its unique channel to provide service by getting much closer to end users. b. Environmental analysis The assessment of possible impacts on the environment prior to the approval of a project provides an effective means of harmonizing and integrating environmental, economic, cultural and social considerations into a decision making process in a manner that promotes sustainable development. The Environmental Assessment Regulations, LI 299/2002, was proclaimed in 2002 to give complete legal status to the Ethiopian Environmental Impact Assessment procedures. The Regulations require that all
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development activities likely to impact adversely on the environment must be subject to Environmental Assessment. The objective of the LI is to ensure that such development activities are carried out in an environmentally sound and sustainable manner. Ecologically sound development of the region is possible when energy needs are integrated with environmental concerns at local and global levels, for which an integrated planning framework would be necessary.
The implementations of the project will respect environmental rights and objectives enshrined in the Constitution by predicting and managing the likely adverse environmental impacts, and will maximize the socio-economic benefits. .
6. Financial Analysis
6.1 Initial Project Costs (000) in Birr Type Pick Up Fuel cargo Automobile Cobra Vehicle Depo Petroleum Depo - LPG Outlet Outlet Machine Office Furniture's computers working Capital Others(contingency) Total No Specification 2 Toyota Hailux 1 Turbo 2 Toyota Hailux 2 Toyota V6 1 1 2 with 6 gate 12 Unit Cost 1000 2500 600 1500 Total cost 2,000 2,500 1,200 3,000 40,000 10,000 10,000 7,200 400 250 4,000 4,050 84,600
5000 600
21
6.2 Expansion Project Costs (000) in Birr Type Pick Up Fuel cargo Automobile Toyota Land closure Depo Outlet Outlet Machine Office Furniture's Computers Working Capital Others(contingency) Total 6.3 Price of Fuel A government committee also revises the retail prices of petroleum products every three months. Lubricants and greases, however, are being directly imported by the Oil Companies with the intervention of government in setting prices on a quarterly basis. The margin set by the Ethiopian government on lubricants and greases is attractive as compared to the slim margin on fuel. In the year 2008, the overall consumption of fuels in Ethiopia was over 2 billion liters. By the same year, nationwide Lubricants and greases consumption was over 25 million liters. The consumption of both fuels and lubricants is consistently increasing by 10% on a year on year basis and the trend in growth is expected to continue in a similar pattern over the next years. Increased economic activity coupled with increased government spending in the areas of infrastructure, power, mining and other sectors continues to further expand the demand for petroleum products. For long, few multinational oil companies with little competition to satisfy the increasing demand had controlled the petroleum industry. No Specification 10 Toyota Hailux 3 Turbo 6 Toyota Hailux 8 Toyota V6 1 50 with 6 gate 50 Unit Cost 1,000 2,500 600 1,500 1,000 300 Total cost 10,000 7,500 3,600 12,000 50,000 5,000 15,000 1,400 1,250 7,000 4,050 161,800
22
The current distributors margin and retailers margin is as follows: Distributors Profit Margin Cents per liter MGR 7.75 Kerosene 5.35 Jet Fuel 14.00 Light Fuel oil 5.00 Heavy Fuel Oil 5.00 Sources: Ethiopian Petroleum Enterprise (EPE) Type of Fuel Retailers Profit Margin Cents per liter 4.00 4.00 0.00 0.00 0.00
As you we can see from the above table, Jet fuel is the cost profitable business. The price and the profit margin for lubricants and other oils are put on range with high profit margin. Risk on investment for Petroleum investment The nature of investment on petroleum business is such that once the network of service stations are build, the amount of capital investment on fixed assets will be minimal whilst a significant proportion of investors capital will be circulating on stock of petroleum products. Stock and inventory being the next liquid form of asset next to cash, being engaged in the sectors provides investors with flexibility to diversify business. In addition, Oil Companies are also enjoying a 15 days credit on supply of fuels from Ethiopia Petroleum Enterprise (EPE), an incentive the Ethiopian government has provided to facilitate a smooth distribution of the products across the country. From control point of view, the petroleum business is a safe business for investors as costing and pricing mechanisms are highly transparent and automated.
23
Income Statement (000) birr

2013 Number of stations Owned by company Number of stations Owned by Dealers/retail ers Estimated industry Volume Market Share Profit Margin Estimated industry Volume Sales -Jet Market Share Profit Margin Estimated industry Volume Sales -LFO Sales -Jet Market Share Profit Margin Estimated industry Volume 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Netw ork Plan
11
15
19
23
29
37
46
57
72
89
112
Sales MGR
2,559,287
2,815,216
3,096,737
3,406,411
3,747,052
4,121,758
4,533,933
4,987,327
5,486,059
6,034,665
6,638,132
255,929 19,834
295,598 23,482
341,415 27,799
394,335 32,911
455,457 38,962
551,102 48,323
666,834 59,933
806,869 74,331
976,312 92,189
1,181,337
1,429,418
114,338
141,808
692,823
775,331
867,665
970,995
1,086,631
1,216,038
1,360,856
1,522,920
1,704,285
1,907,248
2,134,382
69,282 970 46,864 4,686 234 123,425
77,533 1,113 52,671 5,267 270 138,020
86,767 1,245 59,199 5,920 303 154,341
97,100 1,393 66,534 6,653 341
108,663 1,559 74,779 7,478 383 193,000
121,604 1,745 84,046 8,405 431 215,823
136,086 1,953 94,461 9,446 484 241,344
152,292 2,185 106,167 10,617 544 269,883
170,428 2,446 119,323 11,932 612 301,796
190,725 2,737 134,109 13,411 687 337,484
213,438 3,063 150,728 15,073 772 377,391

24
172,592
Market Share Profit Margin Estimated industry Volume Sales -LFO Market Share Profit Margin Estimated industry Volume Market Share Profit Margin Estimated industry Volume Market Share Profit Margin Profit from Othe rs (car wash, Restaurants) Gross Profit Expe nses Storage and handling cost Station
12,342 617 5,635 563 282
13,802 707 6,198 682 349
15,434 791 6,818 750 394
17,259 885 7,500 825 444
19,300 989 8,250 907 501
21,582 1,106 9,075 998 565
24,134 1,237 9,982 1,098 637
26,988 1,383 10,981 1,208 718
30,180 1,547 12,079 1,329 809
33,748 1,730 13,287 1,462 913
37,739 1,934
14,615 1,608 1,029
Sales - LPG
5,635 563
1,127 2,346 235 4,223
6,198 682
1,398 2,698 283 5,227
6,818 750
13,837 3,103 326 6,010
7,500 825
15,221 3,568 375 6,912
8,250 907
16,743 4,103 431 7,949
9,075 998
18,418 4,719 495 9,141
9,982 1,098
20,259 5,426 570 10,512
10,981 1,208
22,285 6,240 655 12,089
12,079 1,329
24,514 7,176 754 13,903
13,287 1,462
26,965 8,253 867 15,988
14,615 1,608
29,662 9,491 997 18,386
Sales Lubri cants
110 26,270
121 31,268
133 36,676
146 43,032
161 50,505
177 61,488
195 74,950
214 91,465
236 111,741
259 136,652
285 167,278
2,359
2,831
3,397
4,076
4,892
5,870
7,044
8,453
10,143
12,172
14,606
25
Maintenance cost Salary and admin cost Others Depreciation Expense(SL) Total Expense Net Income After tax Income Tax (35%)
390 1200 592 650 4,541 21,729 7,605
540 2100 821 900 6,291 24,977 8,742
713 3560 1,150 1,188 8,820 27,856 9,750
703 4272 1,358 1,172 10,409 32,623 11,418
879 5126 1,635 1,465 12,531 37,973 13,291
1,099 6152 1,968 1,831 15,088 46,400 16,240
1,373 7382 2,370 2,289 18,169 56,781 19,873
1,717 8858 2,854 2,861 21,882 69,584 24,354
2,146 10630 3,438 3,576 26,357 85,384 29,884
2,682 12756 4,142 4,470 31,752 104,900 36,715
3,353 15307 4,990 5,588 38,256 129,021 45,157
Net Income After tax
14,774
17,135
19,294
22,377
26,147
31,991
39,197
48,090
59,076
72,655
89,452
26
7. Conclusion To summaries, future trends in Petroleum, lubricant and LPG market will influence the future demand of and supply. Numbers of vehicles are increasing at tremendous rate, due to the government policy towards industry led agriculture and a lot of heavy industries like textile and metal opened industries in the country. According to Central statics Survey; between 1998 and 2002 the number of manufacturing industries increased form 1,43 to 2172. In addition, the awareness of the community to use LPG increase from day to day. The other competitive advantage of the sector is since there are very few companies which distribute Petroleum (9), Lubricants and LPG (4), Based on the project evaluation criterias, the project is feasible enough (please see the following table)
Indicator IRR
Calculated 29%
2 3
NPV Pay Back period
121,847,000 birr 4years & 7months
Criteria Should be greater than the market interest rate ; 28% Should be greater than zero Should be shorter
Decision Accepted
Accepted Accepted
27
Reference 1. Energy Law in Ethiopia, Girma Hailu 2. GTZ Ethiopia Bioenergy Market Assessment Report 3. World Bank energy consumption report 4. Petroleum Operations Proclamation No. 295_ 1986 p 62-70 ,Addis Ababa, Ethiopia 5. Report on Large and Medium Scale Manufacturing and Electricity Industries Survey, Central Statistic Authority 6. Investment Guide, Addis Ababa, Ethiopia 7. Oil and Gas in Africa, African development Bank 8. Commercial code of Ethiopia, 1960, Addis Ababa, Ethiopia 9. Investment Guide of Ethiopia, Addis Ababa, Ethiopia 10. Company registration in Ethiopia, Addis Ababa chamber of commerce 11. The Management of commercial Road in Ethiopia, Addis Ababa chamber of commerce 12. Oil Price and Profit margin , Ministry of trade and transport and Ethiopian petroleum enterprise 13. Quarterly Reports of Ethiopian petroleum enterprise 14. The Prospectus of Dalole Oil company 15. The Prospectus of National Oil company 16. The Prospectus of Oil Libiya company 17. The Prospectus of Yetebaberute Oil Company 18. The Prospectus of Total Oil company
28

Ethiopia LPG and petroleum feasibility

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Ethiopia LPG and petroleum feasibility

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Table of content

Regulations, Licenses and incentives (Legal analysis)

Regulatory Requirements License Pre-Qualification for License

VII. Conclusion VIII. References

b. Overview of Energy sources and energy policy in Ethiopia

Inspected and Registered Vehicles by License and Plate Type

4,594 1,653 1,571 7,505 394

4,777 1,719 1,634 7,805 410

4,969 1,787 1,700 8,117 426

5,167 1,859 1,768 8,442 443

5,374 1,933 1,838 8,779 461

5,589 2,011 1,912 9,131 480

5,812 2,091 1,988 9,496 499

6,045 2,175 2,068 9,876 519

6,287 2,262 2,151 10,271 539

6,538 2,352 2,237 10,681 561

6,800 2,446 2,326 11,109 583

Total Amount of Petroleum Products Consumed in Transport Sector

Source: Ethiopian Petroleum Enterprise (EPE)

Total Amounts of petroleum imported and consumed Year

In Metric Tone (MT)

Petroleum Products By Quantity

One filing station and 220 distributers

All Products Volume Trend (September. 2010 & 2011)

NOC 2010 5692

YBP 2010 1270

Total 2010 5426

Kobil 2010 585

6714 726 652 17649

6815 947 275 15244

7502 829 1203 532

7797 1045 666 4970

2863 3472 131 0

7028 2781 1294 12377

7320 2252 1247 10703

4. Regulations, Licenses and incentives (Legal analysis)

Income Statement (000) birr

Netw ork Plan

69,282 970 46,864 4,686 234 123,425

77,533 1,113 52,671 5,267 270 138,020

86,767 1,245 59,199 5,920 303 154,341

97,100 1,393 66,534 6,653 341

108,663 1,559 74,779 7,478 383 193,000

121,604 1,745 84,046 8,405 431 215,823

136,086 1,953 94,461 9,446 484 241,344

152,292 2,185 106,167 10,617 544 269,883

170,428 2,446 119,323 11,932 612 301,796

190,725 2,737 134,109 13,411 687 337,484

213,438 3,063 150,728 15,073 772 377,391

12,342 617 5,635 563 282

13,802 707 6,198 682 349

15,434 791 6,818 750 394

17,259 885 7,500 825 444

19,300 989 8,250 907 501

21,582 1,106 9,075 998 565

24,134 1,237 9,982 1,098 637

26,988 1,383 10,981 1,208 718

30,180 1,547 12,079 1,329 809

33,748 1,730 13,287 1,462 913

14,615 1,608 1,029

Sales Lubri cants

390 1200 592 650 4,541 21,729 7,605