Ongoing infrastructure development and the unification of two government bodies to form the Ethiopian Petroleum Supply Enterprise (EPSE) has led officials to confidently assure businesses and investors of regular, reliable supplies of energy. EPSE CEO Tadesse Hailemariam explains how it is putting the government’s promises of energy security into action.
What do you make of the prominence the continent is gaining in the international investment arena?
The continent as a whole is very rich in resources. We have minerals from South Africa that are distributed all over the continent. We have diamonds in the Democratic Republic of Congo and oil in Angola and Nigeria, while some other parts of Africa have a lot of potential in fossil fuel. Africa boasts wildlife and forestry. The continent is very rich in untapped resources. This is why Africa has big potential to support the economy of the world. It is time to work together with the developed nations and use these untapped resources. Africa’s development can be fostered by improving the infrastructure and tackling other critical issues. This could be achieved by working with Western partners as well as partners from China and Korea.
Speaking about infrastructure, road and railway projects are a key element of the GTP as a means of connecting Ethiopia's growing economy to the regional and global trade routes. Could you please discuss Ethiopia’s regional integration efforts?
Ethiopia is working hard to contribute to regional integration, especially contributing to the neighboring countries that used to be known for conflicts for many decades. Now we are uniting to use our resources. We have to use all of our resources together as well as share the infrastructure. We are sharing electricity with Djibouti and Sudan. We are in the process of constructing infrastructure together with Kenya. After that, it will be extended up to Tanzania.
Economic integration will bring countries together despite geographical boundaries. Geographical boundaries can still remain the same, but if we break the boundaries towards economic development, we can grow together. That growth and integration could bring peace. Peace could not come by any other means, but by economic integration. That is the agenda of Ethiopia.
According to your assistant Demelash Alemu, following a sharp decline in international oil prices, Ethiopia’s oil import bill for the fiscal year 2014/2015 was expected to go down by $600 million, an estimated 21% of the overall import bill. How will that remaining budget be used in benefit for the country?
The plunging of oil prices is bad news for producers and good news for consumers. We are getting an advantage out of it. We will save around $500-600 million from our budget. It will be directed towards other projects and it will contribute a lot to the economic development. It can be directed towards road and railway infrastructure and many other projects. We will benefit from it greatly.
In 2012 the Council of Ministers created EPSE by merging the Ethiopian Petroleum Enterprise (EPE) and the National Petroleum Depot Administration (NPDA). What was the need to merge these two key companies and what have been the results/milestones achieved since then in terms of efficiency, productivity, and so on?
These two institutions were accountable to different ministries. The restructuring was required as the aim of the depot administration is to have a strategic storage. If there is shortage, fuel or oil can be taken out of that depot in order to help with this shortage. The storage helps avoid crisis and its consequences.
These enterprises shared the same objective and so, merging them together alleviated procedures. Even planning how to handle the oil issue became easier. It became a one-stop shop. Considering those issues, the government decided to merge these two institutions. Since then, we have registered many improvements. When there is a shortage in fuel supply, whether it is natural or man-made, the public should still be able to get the supply. Today, this issue can be solved in a few minutes. The decision of the government was appropriate and guaranteed smooth operations.
Ahmed Shide was keen to tell us about the petroleum pipeline that will carry oil directly from the vessels at the port of Djibouti to a storage facility in Awash, bypassing the congested port and road from Djibouti. How will it ease the sector and what are the figures you are currently managing regarding cost efficiency, energy security and environmental protection?
That is correct. We are in the progress of making the Horn of Africa pipeline project viable. It is a 550km-long pipeline that will stretch form Djibouti port to Awash, which is 250km to the east of Addis Ababa. We have a national reserve depot in Awash with a capacity of 100,000 cubic meters. We are expanding that depot and planning to have the pipeline project implemented so that we can supply the whole country directly from Awash. The pipeline is the most efficient and cheapest means of transportation, especially for the oil industry.
We are now using trucks. There is also a possibility of using rail wagons. Our electricity-powered railway system has just been completed from Djibouti to Sebeta. The demand for oil will be reduced because the transportation system for dry cargo and even for fuel requires thousands of trucks moving from Ethiopia to Djibouti. As per dry cargo, the railway system will minimize the congestion and it will be more environmental friendly since we will not be using fuel. Road damage, accidents and congestion of roads will be minimized when we use rail for the dry cargo.
When we use the pipeline, similarly, we reduce the traffic of the tank trucks. That can be beneficial in order to avoid congestion, environmental pollution, accidents and even fuel consumption. Tariff-wise, the tank truck is the most expensive transportation system for oil, followed by rail, and the pipeline is the cheapest. This is also a big advantage for the country. The truck takes four and a half days while the rail takes eight hours from Djibouti to Addis Ababa. If we use the powerful pipe it can be achieved in a matter of few hours. The heavy-duty pumps that we use from Djibouti to Awash take just a few hours.
What environmental message do you think Ethiopia is sending to the international community?
Ethiopia is very environmentally responsible and respectful of this world agenda. Every aspect of our green revolution contributes to this agenda. All our power projects are green and renewable. Wind turbine projects, such as Adama and Ashegoda, are being completed. A geothermal plant is underway. We are exploring geothermal power opportunities in the Rift Valley. Bio-diesel projects are underway. Fossil fuel is one of the most dangerous air polluters. We are trying to create more environmental friendly products. Our imports include lead-free petroleum products and lead-free benzene gasoline. Gasoil is 500 ppm and it used to be 5,000 ppm two-three years back. Now we are at 500 and we are hoping to reduce it down to 50 and even to 10 in the coming years. The European level is 10ppm. We are not at this level yet but we are growing. We have to grow to that standard so that our import is considerate of the environment.
Apart from buying fuel from governments such as Sudan and Kuwait, Ethiopia meets its demand with private trading companies. What role do they have in Ethiopia’s demand?
The development should make it inclusive for everybody, private and public companies. Our government is very keen to work with all the governments in the world. We have good diplomatic relations not only with our neighbors but with the rest of the world. We are working a lot with the Middle East. We are getting about 60% of our oil requirement from Kuwait and even 100% for jet fuel. We get 100% of aviation fuel from Kuwait, specifically from the Kuwait Petroleum Corporation. 40% of gas oil supply is covered by the Vitol Group. We get fuel oil from a private company called Bakri International. As for gasoline, we receive around 15-20% from Vitol and the remaining 75-80% from the Sudanese Petroleum Corporation. The government is very keen and loyal and so are the private companies. We have fruitful business relationship with Vitol.
We know EPSE has international relations and offices in Sudan and Djibouti: do you have international expansion plans?
We want to expand to Somali and Kenya. We are planning to materialize the Lamu project. Ethiopia is landlocked but we don't feel that we are landlocked because of our friendly neighbors. Largely, we are land-linked country.
We are planning to develop the port of Lamu. With access to that port, we can have our own office and a branch there. We are developing good relationships and smooth operations there. The issue of piracy is declining. The Government of Somalia is getting strong and we are planning to open offices in Mogadishu in the near future. This will also benefit economic integration.
Please tell us more about this plan to increase the number of national depots in Ethiopia.
The demand for oil is growing exponentially. Like the economic growth, the demand is growing parallel to it. We do have intentions and plans to expand the depots. The plan is to not only to expand but to elevate the capacity of the existing depots. In Awash, we started to build a 60,000 cubic meters capacity tank and it is under construction now. Another plan is to build one 30km south of Addis Ababa at Dukem, along the newly built railway, just before Debre Zeit. We are in process with the regional government of Oromia State to secure a plot of land to develop tank farm about 60,000 cubic meters capacity. By doing so, we will increase the strategic depot capacity.
Another aspect is filling stations as some of the rural areas are very far from the center and have no filling stations. That is a market failure. Our government is always involved in the areas where there is market failure. We identified about 160 points to be addressed in the near future. When the areas get developed, these stations will be transferred to the private companies. At that point it will be simple and manageable by everybody. At present, no one apart from the government can provide such huge investments. The government intervenes to resolve this market failure.
Once the country develops in the coming 10 years and Ethiopia becomes a middle-income nation, those stations will be transferred to the private sector. As for the LPG, NG, lubricant sectors, those business activities can be handled by the private sector as they are easy to operate.
What message of confidence do you want to send to the international community regarding Ethiopia’s fuel supply sector?
Oil is the most critical and important commodity. It is also a political commodity. Every morning people look at the price of oil, gold or coffee because it touches everybody's life. For example, someone wants to invest in agriculture mechanization, such as combine harvesters, tractors, loaders, dump trucks and trucks all require oil fuel. Our enterprise is responsible for providing that.
That is why we have the national reserve. There should be no interruption in any case. We need a sufficient reserve in order to secure and build confidence of the business community and the investors. We do have a sufficient reserve for now but in the face of growth and development we need to consider the capacity of the reserve for the future. That is why we are looking for land and expanding the existing depots.
I can assure you that there will be no interruption. The only interruption comes because of inaccessibility, but inaccessibility is now very minimal. For example, the road network is now aggressively expanding throughout the country and will ease inaccessibility and fuel supply reliability. We are working in that angle.
Which opportunities would you like to highlight to the UK business community?
When Ethiopia was poor, Westerners came to provide us with their support. They would send us tons of wheat. These days we don’t require wheat, we want friendship and partnerships enabling us to produce wheat here.
The investors should come here to produce wheat and tap all the resources that Ethiopia has. This relationship is very prominent these days. We are seeing more investors coming to Ethiopia and showing interest in investing here. That is good news for us and good news for the investors.
We are a highly secure nation in the region and our people are friendly and lovely. We are the second most populous nation in Africa, so there are plenty of human resources. We have a trained manpower in all the industries. In the past two decades we built about 35 state-owned universities. Education is widely developed in every corner of the country.
Tourism sector is very attractive for investors too. They are very impressed by our natural wonders, such as the Danakil Depression and the Erta Ale volcano. Foreign investors should come and collaborate with Ethiopian citizens and grow together. They can benefit Ethiopia and benefit themselves – it is a win-win situation.
You have been CEO of EPSE for the last three years, what has been your biggest challenge heading this institution?
I got very lucky because I came to the office when the fuel just plunged and we benefitted from it. The fuel supply was very smooth and we merged the two companies together. Merging two different working cultures was a challenge.
The depot was administered by a civil service policies and the other one was a public enterprise. The administrative pattern was very different and so, bringing those workers together in a smooth way was a hard task. But I managed and I succeeded. I think I did well.