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Project Proposal For LPG in Eth

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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

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Draft Feasibility Study for Distribution of petroleum, LPG and Lubricants throughout Ethiopia HASS PLC

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Regulatory Requirements 19
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Pre-Qualification for License 19

Learn more 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

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VII. Conclusion 27

VIII. References 28

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1. Executive Summery

Learn more and related products and lubricants like: Diesel Engine Oils, Petrol
The purpose and scope of this feasibility study is to assess the feasibility of distributing
LPGs, petroleum
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
Download now 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

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Draft Feasibility Study for Distribution of petroleum, LPG and Lubricants throughout Ethiopia HASS PLC

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Prepared by Grace Consultant
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Version
Issue date
1.0
May 30, 2012
Revision Date May 31, 2012
2. Background of the document

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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
Download now 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
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agreement. 30 days countries enjoy preferential trade terms. Ethiopia has similar
agreements with a number of countries and the EU.

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the realmore
In the Growth and transformation plan (GTP Plan), the government expected to boost
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).
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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

5
Draft Feasibility Study for Distribution of petroleum, LPG and Lubricants throughout Ethiopia HASS PLC

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Ethiopia are resolved through the application of the law, collective agreements, work
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rules,for 30 days
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.

Learn morein foreign exchange must be carried out through authorised dealers
All transactions
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

Download now 
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.

6
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Table:30
R uraldays
and urban enrgy sources

Energy Source Rural (%) Urban (%)

Firewood and Charcoal 82.2 74.47

Learn more Dung 

Agricultural residues
9.8
8.4
7.8
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.

Download now 
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.
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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

Learn more
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
Download now 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
Learn more
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.

Download now 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 for 30 days
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

Learn more
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

Download now overall size of demand for fuels & lubricants amounts 2.5 billion liters and 25 millions
liters respectively. 
Project ownership and structure

10
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