Malaysian palm oil manufacturer, Pacific Interlink, is set to erect the largest ever edible oil refinery in Ethiopia, which will produce 300,000tn of oil at an estimated cost of 401.1 million Br.
The company's proposal was approved by the Privatisation and Public Enterprises Supervising Agency (PPESA), which initially designed and studied the viability of such a project.
PPESA did so as part of its role in designing projects for the establishment of new enterprises that are able fill gaps in the economy, but are as yet unsatisfied by the private sector.
Local oil production, in Ethiopia, only meets 20pc of the consumption, which reached 285,210tn in 2011/12, according to a study conducted by the Ethiopian Pulses, Oilseeds & Spices Exporters Association.
This is despite the fact that oilseeds are a large part of the country's crop production and the third largest export commodity for the country, having earned it 323.8 million dollars in 2010/11.
Such a gap has led Ethiopia to rely on imports, of mostly palm-oil, for its edible oil consumption. These imports were supplied by the private sector until January 2011, when prices skyrocketed leading the government to successively introduce a price cap, and later, in May, take over the import of palm-oil altogether, distributing it at a subsidised price for consumers.
For a year, starting from May 2011, the government imported 16,000tn of palm-oil, on a monthly basis, from three suppliers found in Indonesia and Malaysia. It increased this by 9,000tn from May 2012, taking its total imports up to 300,000tn annually.
It is this amount of import that PPESA hopes to substitute locally, by facilitating the construction of a refinery plant.
After designing the project and conducting a feasibility study, it floated a tender, requesting that companies submit an Expression of Interest (EoI), in order to implement the project, either jointly with the government or independently.
Shortlisted candidates were asked to provide a complete business plan and a proposal concerning the modality and implementation of the project. They were also to be required to provide a three year audit report.
Three companies, including a local oil manufacturer and an Indian oil distributor, submitted their EoI's by the bid closing date, of January 18, 2013.
In the end, it was Pacific Interlink's proposal that was approved by the Agency, since the Indian company did not have adequate experience in refining oil on such a large scale and the local company lacked the capacity to do so, according to Asebe Kebede, assistant public relations head at the Agency.
Pacific, which was incorporated in Kuala Lampur in 1988, exports various commodities and services from Malaysia, including; soap, food products, palm-oil, paper and building materials. The company has three refining plants, one in Malaysia and two in Indonesia, which have a total refining capacity of 4,700tn a day. It also has a storage capacity of 135,000tn, in three different locations.
The company is not new to the Ethiopian market, having supplied the Ethiopian government since they started importing palm-oil. For the current contract, which ends in may 2013, it is expected to supply 103,200tn of palm-oil.
Pacific has opted to implement PPESA's project on its own, rather than agreeing to a joint venture deal, which means the company will not be a state enterprise. It will be getting support from the PPESA and the Ministry of Industry (MOI), when it comes to acquiring an investment licence and land, among other things, according to Asebe.
PPESA's study has already identified two locations, in Modjo town, 73Km east of Addis Abeba, and Woldya town, 521Km north, as the future sites for the project. The study also reveals that the project may take up to 26 months for commissioning and construction.
After it starts production, says the study, it will have a net present value (NPV) of three billion Birr and a payback period of four years.