9 December 2012

Ethiopia: Fed Govt to Erect Largest Ever Edible Oil Refinery Plant

The Privatization & Public Enterprises Supervising Agency (PPESA) finally got the ball rolling towards setting up a new state enterprise; an edible palm oil refinery at a projected cost of 401.1 million Br.

When completed, the refinery will have an annual production capacity of 300,000tns, according to officials of the Agency. This volume is equal to the total yearly imports of edible palm oil the state owned Merchandise & Wholesale Trade Enterprise (MWITE) currently imports and distributes in the country. It will also cover 80pc of the nation's demand, Agency officials disclosed.

Senior officials at PPESA, who see their Agency's task with the role of not only privatising and supervising state owned enterprises, but also identifying gaps in the economy which are not covered by the private sector, and designing projects to fill such gaps, came up with the idea of building an edible palm oil refinery at the start of the Growth & Transformation Plan (GTP) period, in 2010.

Building a large-scale oil refinery to substitute imports was actually included in the GTP document. Along with the palm oil factory, the Agency also has five other projects on the drawing table, including a coal phosphate fertilizer as well as rubber processing plants, a hydrogen peroxide factory and an expansion project for pulp and paper plants.

They have now floated public tender inviting foreign and local companies to submit expressions of interest to establish a crude edible oil refinery plant, in one of the two locations they have identified as suitable for erecting the plant.

Although oilseeds make up a large part ofEthiopia's crop production, the country mainly relies on imported products to meets its growing demand for edible oil. Its annual consumption of edible oil reached at 272,149tns, according to a 2009 study titled, "Business Opportunities Report on Oilseeds," and conducted by Ethiopian Pulses, Oilseeds & Spices Exporters' Association.

There are few domestic manufacturers with low level production capacity and volume to satisfy national demand. They only fulfil 20pc of the national demand, leaving the balance to be covered by imports of food oil produced from palm trees. This unmet demand had led to massive imports of palm oil, mostly fromIndonesia, and subsequent price hikes, which had led the government to first place a price-cap on the commodity, in January 2011.

There were six major importers, including Al-Sam International and Get-AS International, which had imported 13 million litres of palm-oil annually. The state owned trading company took the business away from them beginning May 20, 2011 after some of the major importers had complained that the cap was unprofitable.

The government had imported 16,000tns of palm oil a month for a year. In 2011/12, national edible oil consumption reached 285,210tns, of which 265,000tns was imported. The remaining 15pc to 20pc came from different varieties other than palm-oil, according to research conducted by the Association. However, beginning May of 2012, the government increased its import of palm-oil further to 25,000tns a month.

However, it took time until the Agency could conduct a feasibility study and issue public tender in selecting a partner for the project, according to a senior official at the Ministry of Industry (MoI), who wished to remain anonymous.

"The fact that it was not a priority sector, and needed time to get financing from the Agency, also took time," said this official. "The Agency was also hopeful that private investors, such as Mohammad Ali-Al Amoudi (Sheik), who had previously announced plans to build a refinery, would get into the industry in the meantime."

In addition, many foreign companies had previously asked to import crude oil from abroad, refine it inEthiopiaand sell it at a competitive price, according to the senior official at the Ministry.

Having finally completed the feasibility study, the Agency has been given the green light from the Ministry, to set up the refining plant. The project will have an initial rate of return of 36pc, a net present value (NPV) of three billion Birr and a payback period of four years, according to a summary of the project. It is expected to employ 198 people and save foreign currency for the nation estimated at a value of 136 million Br, on a yearly basis.

The Agency is now in the process of identifying the ideal location, and has narrowed down its options to Modjo town, 73Km east of Addis Abeba, and Woldya, Wello, 521Km north of Addis Abeba. The latter is an area identified for having a considerable resource base to grow palm trees, according to Wondafrash Assefa, public relations officer at the Agency.

"The Agency is prepared to work together with private investors who would be interested to either fully build and own the plant or deal with the Agency in a joint venture agreement," Wondafrash told Fortune.

Of the 401.1 million Br investment required, 136 million Br comprises a foreign exchange component, PPESA's project document discloses. Investors interested in the project are expected to submit legal documents of establishment, audit reports for three years and company profiles of a partner, if they have one. They are also expected to present a detailed business plan, at the bid closing date of December 08, 2013.

The Agency projects that it will take 26 months to start construction of the plant and commissioning.

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