Project Proposal For LPG in Eth PDF

Table of content
Pa
ge
Title No
I. Executive Summery 1
II. Background of the document 2
Overview of Ethiopia 2
Overview of Energy sources and energy policy in
Ethiopia 6
Overview of Ethiopian policy towards to LPG,
Kerosene and other related by products 8
III. Market Analyses 10
Nature and size of demand for petroleum products 10
Project ownership and structure 10
Proposed Location 11
Past Demand 11
Forecasted Demand 12
Supply & Distribution 13
Types of Products 14
Target customers 15
Competitors Analysis 15
Marketing 18
IV. Regulations, Licenses and incentives (Legal
analysis) 19
1
Draft Feasibility Study for Distribution of petroleum, LPG and Lubricants throughout Ethiopia HASS PLC
Regulatory Requirements 19
License 19
Pre-Qualification for License 19
V. Environmental Analysis 20
Location of the project 20
Environmental analysis 21
VI. Financial Analysis 21
Initial Project Costs 21
Expansion Project Costs 22
Price of Fuel 23
Risk on investment for Petroleum investment 23
Income statement 24
VII. Conclusion 27
VIII. References 28
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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 Feasibility study for LPG , Kerosene

Document and related supplies
3
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 importer’s 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
Ethiopia’s 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 Rural (%) Urban (%)

Firewood and Charcoal 82.2 74.47
Dung 9.8 7.8
Agricultural residues 8.4 6.3
Kerosene 0.0 7.6
LPG 0.0 0.6
Electricity 0.6 3.0
Sources: GTZ, 1998
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 Ethiopia’s 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, Ethiopia’s
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 nation’s
current efforts in the areas of hydroelectric power projects and exploration of Oil and
Gas are clear testimonies of the government’s 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
2001/0 2006/ 2008/
Type of License 1999/00 2000/01
2
2002/03 2003/04 2004/05 2005/06
07
2007/08
09
1. Government
16,081 16,611 17,278 17,070 17,424 20,013 21,581 27,365 27,210 31,200
2. Mass
organization 239 256 294 261 780 1,657 2,271 2,880 3,852 4,417
3. UN
1,015 1,001 954 1,056 1,045 1,202 1,221 1,548 1,386 1,589
4. C.D
819 815 921 1,060 672 1,050 1,099 1,394 1,318 1,511
5. Aid
Organization 3,794 4,280 4,219 4,052 4,393 4,384 4,828 6,122 6,292 7,216
6. OAU
134 132 157 217 192 225 250 317 330 379
7. Commercial
30,851 33,311 34,995 34,931 36,703 50,046 58,120 73,697 81,761 93,752
8. Taxi
10,156 10,632 12,010 12,506 12,395 14,523 20,062 25,439 34,282 39,310
9. Private
Commercial 9,859 10,661 11,531 8,245 13,508 14,988 17,263 21,890 24,014 27,536
10. Private cars 102,69

42,258 43,858 47,905 53,540 58,696 58,221 65,930 83,600 89,555
0
Total 115,206 121,557

130,26
132,938 145,808 166,309 192,625
244,25
270,000
309,60
4 2 0
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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 country’s 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
Bus’s 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
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
License
1.
Governme
32,448 33,746 35,096 36,500 37,960 39,478 41,057 42,699 44,407 46,184 48,031
nt
2. Mass
organizatio
4,594 4,777 4,969 5,167 5,374 5,589 5,812 6,045 6,287 6,538 6,800
n
3. UN
1,653 1,719 1,787 1,859 1,933 2,011 2,091 2,175 2,262 2,352 2,446
4. C.D
1,571 1,634 1,700 1,768 1,838 1,912 1,988 2,068 2,151 2,237 2,326
5. Aid
Organizati
7,505 7,805 8,117 8,442 8,779 9,131 9,496 9,876 10,271 10,681 11,109
on
6. OAU
394 410 426 443 461 480 499 519 539 561 583
7.
Commerci 102,565 112,206 122,753 134,292 146,915 160,725 175,834 192,362 210,444 230,226 251,867
al
8. Taxi
42,062 46,015 50,341 55,073 60,250 65,913 72,109 78,887 86,303 94,415 103,290
9. Private
Commerci
29,464 32,233 35,263 38,578 42,204 46,171 50,511 55,259 60,454 66,136 72,353
al
10. Private
cars 174,573 190,983 208,935 228,575 250,061 273,567 299,282 327,415 358,192 391,862 428,697
Total 396,827 431,528 469,387 510,696 555,776 604,976 658,680 717,305 781,309 851,192 927,503
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3.2 Supply & Distribution
Ethiopia’s 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
Petroleum Products Consumed in Transport Sector By Total
Quantity Amount of
Road Transport (Motor Petroleum
Aviation
Vehicle) Products
Year
MGR Consumed
Sub-Total
(Motor in
Gasoil Jet/Kerosene Transport
Gasoline
Regular) Sector
1997/98
122,995 557,640 680,635 252,302 932,937
1998/99
135,469 542,936 678,406 238,836 917,241
1999/00
142,526 548,787 691,313 224,177 915,490
2000/01
129,964 610,835 740,799 225,431 966,230
2001/02
133,111 623,197 756,308 259,786 1,016,095
2002/03
148,555 679,281 827,837 259,630 1,087,467
2003/04
130,415 688,527 818,943 294,699 1,113,642
2004/05
146,094 773,256 919,350 334,638 1,253,988
2005/06
137,193 811,689 948,882 370,401 1,319,283
2006/07
143,743 905,478 1,049,221 402,311 1,451,532
2007/08
139,093 1,073,148 1,212,241 482,173 1,694,414
2008/09
150,099 1,203,567 1,353,666 506,497 1,860,163
2009/10
155,806 1,237,922 1,393,728 529,857 1,923,584
2010/11
141,397 1,213,751 1,355,149 558,462 1,913,610
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Source: Ethiopian Petroleum Enterprise (EPE)
Total Amounts of petroleum imported and consumed

In Metric Tone (MT)
Year Petroleum Products By Quantity Total
LPG MGR Jet/Kerosene Gasoil LFO HFO
(Liquified (Motor (Light (Heavy
Petroleum Gasoline Fuel Oil) Fuel Oil)
Gas) Regular)
1997/98 -
4,401 122,995 252,302 557,640 107,576 1,044,914
1998/99 238,836 -
1,304 135,469 542,936 96,025 1,014,571
1999/00 224,177
1,283 142,526 548,787 61,566 54,954 1,033,293
2000/01 - 225,431
129,964 610,835 49,149 61,973 1,077,352
2001/02 - 259,786
133,111 623,197 40,688 80,894 1,137,677
2002/03 - 259,630
148,555 679,281 41,865 93,804 1,223,136
2003/04 - 294,699
130,415 688,527 40,770 90,078 1,244,489
2004/05 - 334,638
146,094 773,256 43,185 110,048 1,407,221
2005/06 - 370,401
137,193 811,689 41,521 117,198 1,478,002
2006/07 - 402,311
143,743 905,478 42,255 116,429 1,610,216
2007/08 - 482,173
139,093 1,073,148 49,692 138,059 1,882,164
2008/09 - 506,497
150,099 1,203,567 36,421 116,506 2,013,089
2009/10 - 529,857
155,806 1,237,922 10,714 100,967 2,035,265
2010/11 - 558,462
141,397 1,213,751 37,613 99,563 2,050,787
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 government’s 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 +251 011 465 11 25 Petroleum, LPG,
lubricants
NOC Petroleum, LPG,
lubricants
Oilibya 180 Petroleum,

lubricants
YBP 251-11-4400965/67 Petroleum,
lubricants
Kobil Ethiopia +251 11 4674500 / 5 Petroleum, LPG,
/6 lubricants
Nile Petroleum Petroleum, LPG,
lubricants
WAS Petroleum,
lubricants
TAF Petroleum,
lubricants
Dalol 251 114 163838 / Petroleum,
165757 lubricants
Ghion Gas Plc 251-011-2793360 251- One filing Gas only
011-2794771 station and
220
distributers
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All Products Volume Trend (September. 2010 & 2011)
Libya Oil NOC YBP Total Kobil Industry
2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011
MGR 5751 6076 5692 4466 1270 1192 5426 4921 585 759 18724 17414
1020
AGO 21171 21321 31490 28547 12191 0 29522 30353 4171 3888 98545 94309
KERO 6714 6815 7502 7797 2863 2947 7028 7320 2516 2525 26623 27404
FFO 726 947 829 1045 3472 3640 2781 2252 113 44 7921 7928
LUBES 652 275 1203 666 131 97 1294 1247 97 61 3377 2346
AVIATIO
N 17649 15244 532 4970 0 0 12377 10703 0 0 30558 30917
OTHER
PRODUC
TS 0 0 281 318 0 0 528 73 128 18 937 409
LPG Distribution in Metric Tone

Companies 2010 2011
NOC 2742 2895
YBP 0 0
TOTAL 1049 730
KOBIL 0 18
INDUSTRY 3791 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 lion’s 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 criteria’s the following criteria’s should be
fulfilled:
19
 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
20
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 No Specification Unit Total cost

Cost
Pick Up 2 Toyota 1000 2,000
Hailux
Fuel cargo 1 Turbo 2500 2,500
Automobile 2 Toyota 600 1,200
Hailux
Cobra Vehicle 2 Toyota V6 1500 3,000
Depo – Petroleum 1 40,000
Depo - LPG 1 10,000
Outlet 2 with 6 gate 5000 10,000
Outlet Machine 12 600 7,200
Office Furniture's 400
computers 250
working Capital 4,000
Others(contingency) 4,050
Total 84,600
21
6.2 Expansion Project Costs (‘000) in Birr
Type No Specification Unit Total cost

Cost
Pick Up 10 Toyota 1,000 10,000
Hailux
Fuel cargo 3 Turbo 2,500 7,500
Automobile 6 Toyota 600 3,600
Hailux
Toyota Land closure 8 Toyota V6 1,500 12,000
Depo 1 50,000
Outlet 50 with 6 gate 1,000 5,000
Outlet Machine 50 300 15,000
Office Furniture's 1,400
Computers 1,250
Working Capital 7,000
Others(contingency) 4,050
Total 161,800
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.
22
The current distributors margin and retailers margin is as follows:
Type of Fuel Distributors Profit Retailers Profit

Margin Cents per Margin Cents per
liter liter
MGR 7.75 4.00
Kerosene 5.35 4.00
Jet Fuel 14.00 0.00
Light Fuel oil 5.00 0.00
Heavy Fuel Oil 5.00 0.00
Sources: Ethiopian Petroleum Enterprise (EPE)
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 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Number of
stations
Owned by
company 2 3 5
Number of
stations
Netw Owned by
ork Dealers/retail
Plan ers 11 15 19 23 29 37 46 57 72 89 112
Estimated
industry
Sales Volume 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
-
MGR Market Share 255,929 295,598 341,415 394,335 455,457 551,102 666,834 806,869 976,312 1,181,337 1,429,418
Profit Margin 19,834 23,482 27,799 32,911 38,962 48,323 59,933 74,331 92,189 114,338 141,808
Estimated
industry
Volume 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
Sales
-Jet Market Share 69,282 77,533 86,767 97,100 108,663 121,604 136,086 152,292 170,428 190,725 213,438
Profit Margin 970 1,113 1,245 1,393 1,559 1,745 1,953 2,185 2,446 2,737 3,063
Estimated
industry
Volume 46,864 52,671 59,199 66,534 74,779 84,046 94,461 106,167 119,323 134,109 150,728
Sales
-LFO Market Share 4,686 5,267 5,920 6,653 7,478 8,405 9,446 10,617 11,932 13,411 15,073
Profit Margin 234 270 303 341 383 431 484 544 612 687 772
Sales Estimated
-Jet industry
Volume 123,425 138,020 154,341 172,592 193,000 215,823 241,344 269,883 301,796 337,484 377,391
24
Market Share 12,342 13,802 15,434 17,259 19,300 21,582 24,134 26,988 30,180 33,748 37,739
1,934
Profit Margin 617 707 791 885 989 1,106 1,237 1,383 1,547 1,730
Estimated
industry
Volume 5,635 6,198 6,818 7,500 8,250 9,075 9,982 10,981 12,079 13,287 14,615
Sales
-LFO Market Share 563 682 750 825 907 998 1,098 1,208 1,329 1,462 1,608
Profit Margin 282 349 394 444 501 565 637 718 809 913 1,029
Estimated
industry
Sales Volume 5,635 6,198 6,818 7,500 8,250 9,075 9,982 10,981 12,079 13,287 14,615
- LPG Market Share 563 682 750 825 907 998 1,098 1,208 1,329 1,462 1,608
Profit Margin 1,127 1,398 13,837 15,221 16,743 18,418 20,259 22,285 24,514 26,965 29,662
Estimated
Sales industry
- Volume 2,346 2,698 3,103 3,568 4,103 4,719 5,426 6,240 7,176 8,253 9,491
Lubri
cants Market Share 235 283 326 375 431 495 570 655 754 867 997
Profit Margin 4,223 5,227 6,010 6,912 7,949 9,141 10,512 12,089 13,903 15,988 18,386
Profit
from
Othe (car wash,
rs Restaurants) 110 121 133 146 161 177 195 214 236 259 285
Gross Profit 26,270 31,268 36,676 43,032 50,505 61,488 74,950 91,465 111,741 136,652 167,278
Expe Storage and

nses handling cost 2,359 2,831 3,397 4,076 4,892 5,870 7,044 8,453 10,143 12,172 14,606
Station
25
Maintenance 390 540 713 703 879 1,099 1,373 1,717 2,146 2,682 3,353
cost
Salary and
admin cost 1200 2100 3560 4272 5126 6152 7382 8858 10630 12756 15307
Others 592 821 1,150 1,358 1,635 1,968 2,370 2,854 3,438 4,142 4,990
Depreciation
Expense(SL) 650 900 1,188 1,172 1,465 1,831 2,289 2,861 3,576 4,470 5,588
Total Expense 4,541 6,291 8,820 10,409 12,531 15,088 18,169 21,882 26,357 31,752 38,256
Net Income After tax 21,729 24,977 27,856 32,623 37,973 46,400 56,781 69,584 85,384 104,900 129,021
Income Tax (35%) 7,605 8,742 9,750 11,418 13,291 16,240 19,873 24,354 29,884 36,715 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 criteria’s, the project is feasible enough (please see the
following table)
Indicator Calculated Criteria Decision

1 IRR 29% Should be greater Accepted
than the market
interest rate ; 28%
2 NPV 121,847,000 birr Should be greater Accepted
than zero
3 Pay Back 4years & Should be shorter Accepted
period 7months
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

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Table of content

Type of Feasibility study for LPG , Kerosene

Ethiopia has abundant supply of skilled workers in various fields at internationally

b. Overview of Energy sources and energy policy in Ethiopia

Energy Source Rural (%) Urban (%)

To initiate production and utilization of potential energy sources, the Government of

c. Overview of Ethiopian policy towards to LPG, Kerosene and other

All of Ethiopia’s petroleum products is imported. Ethiopian Petroleum enterprise is

To date, petroleum products distribution activities are done according to the

3.1 Nature and size of demand for petroleum products

10. Private cars 102,69

Total 115,206 121,557

Petroleum Consumption : Transport Sector

Total Amounts of petroleum imported and consumed

3.3 Types of Products

3.4 Target customers

 Commercial and private transport

3.5 Competitors Analysis

Oilibya 180 Petroleum,

Libya Oil NOC YBP Total Kobil Industry

LPG Distribution in Metric Tone

4.1 Regulatory Requirements

Pre-Qualification for License

Following requirements are required to be fulfilled for obtaining a license:

a. Location of the project

The assessment of possible impacts on the environment prior to the approval of a

6.1 Initial Project Costs (‘000) in Birr

Type No Specification Unit Total cost

Type No Specification Unit Total cost

6.3 Price of Fuel

Type of Fuel Distributors Profit Retailers Profit

Risk on investment for Petroleum investment

Expe Storage and

Indicator Calculated Criteria Decision

1. Energy Law in Ethiopia, Girma Hailu

2. GTZ Ethiopia Bioenergy Market Assessment Report

3. World Bank energy consumption report

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

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

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