The Ministry of Mines and Energy (MoME) is negotiating with the Sudanese giant, Nile Petroleum Co. Ltd (NPC), to grant it fuel blending rights in accordance with a decision made by the Council of Ministers to blend and supply ethanol and benzene. The negotiations are almost complete, sources at the Ministry told Fortune.
The talks, which began after MoME presented a Bio-fuel Development and Usage Strategic Document that envisaged using the country's rich ethanol potential, is expected to make Nile Petroleum the leading stakeholder in the Ethiopian oil energy market.
A steering committee has been established with representatives drawn from MoME, the Ministry of Trade and Industry (MoTI), Ethiopian Petroleum Enterprise (EPE) and the six oil suppliers to evaluate the technical and financial feasibility studies, though the total cost of the project will be incurred by Nile Petroleum.
"We will cover the entire cost of the project once the agreement is finalised," Sharaf E. Babkir, general manager of the Ethiopian branch of Nile Petroleum, told Fortune. "The negotiations are in the closing stages, and we will submit our final proposal early this week."
The Ethiopian government chose this company based on a bilateral relations agreement signed with Sudan and Nile Petroleum's capacity.
The Ethiopian branch of Nile Petroleum, a subsidiary of NPC, has secured a 20,000sqm plot in Sululta, 24Km north of Addis Abeba, in the Oromia Regional State, for the construction of a fuel depot which will have a combined capacity of 300tns of Liquid Petroleum Gas (LPG) and 1,500 cubic metres of Petroleum.
NPC was established in 1954 as Nile Import and Trading Oil Company a subsidiary of TOTAL, with the Sudanese government holding a 75pc stake until 1993. The company, totally state-owned since 1993, has a 60pc share of the marketing and distribution of petroleum products in Sudan.
The local branch first obtained a license from the Ethiopian Investment Agency (EIA) to distribute LPG and in 2004 it upgraded its license to cover its planned expansion project.
Endorsing a strategic document, the Ethiopian government is now focused on exploring the country's bio-fuel resources. It stipulates incentive schemes for sugarcane producers, a major input for ethanol, in addition to encouraging state-owned enterprises to use blended oil. Providing incentives for Flex Fuel Vehicle importers as well as securing finances for the sector has also been recommended.
To satisfy the total petroleum demands in the country, Ethiopia annually spends 8.6 billion Br, 87pc of its total foreign trade earnings, and a serious drain on its limited foreign currency holdings.
Though the government hopes to switch to alternative energy sourceS to relieve this burden, some petroleum supplying companies are sceptical of the benefit they will get out of this venture.
"Though shifting from benzene to blended oil has its own advantages, there is doubt as to who is going to benefit," the marketing manager of one of these companies told Fortune. "There are associated costs like installing new fuelling machineries, and our benefit should be considered when we are made to shift to a new service."
Nile Petroleum currently has four tankers in Sululta; two for benzene and two for diesel. However, the two diesel tankers are set to be used for storing benzene.
"We will also install another two ethanol storage tankers, which will be increased after three years given a higher demand," Sharaf told Fortune.
A veteran expert who for the last 30 years worked in the petroleum industry, however, warns that the blending is sensitive as ethanol is prone to absorbing water.
"Though blending is customary in other countries too, if water accidentally enters in the early stages of the process, the project may fail as people will loose trust in it," he told Fortune. "The water makes the ethanol unable to mix with benzene."
The necessary supply of the ethanol input is also in question.
Of the three state-owned sugar factories, Fincha currently produces eight million litres of ethanol while the other two - Metehara and Wonji Shoa - do not produce.
However, as the latter two are under expansion, in addition to the newly constructed huge Tendaho sugar factory, it is expected that ethanol supply would significantly increase, a source at the Ethiopian Sugar Development Agency (ESDA) told Fortune.
The total ethanol production is expected to reach 35.1 million litres in 2010 when Metehara and Wonji switch to the production of ethanol rather than Molasses.
Nile Petroleum also has planned to open its fuelling stations in Addis Abeba, though its request for plots is yet to find a response from the municipality.
"We had requested eight different plots in Addis Abeba to no avail," Sharaf disclosed.
The Council of Ministers decided at its regular meeting in 2004 that the petroleum sector should be open to domestic and international investors to curb the distribution problems prevalent in the country.
The sector has since seen a couple of investments, mostly by Ethiopians, including NOC, YBP and the Kenyan Kobil.
Nile Petroleum, the latest to have joined the sector, undertakes petroleum exploration, refining, storage and marketing in Sudan.
Source: Addis Fortune