Ethiopia, on Verge of Halting Oil Imports from Sudan, Looks to Saudi Arabia

12 December, 2007

Ethiopia is on the verge of halting petroleum product imports from Sudan, and may be forced to pay as much as 10 million dollars more every year to get its fuel from Saudi Arabia and other Gulf nations.

Two factors may force Ethiopia to cease importing millions of dollars in petreolum products from neighbouring Sudan, an arrangement that has saved Ethiopia millions over the last four years.

The state-owned Sudan Petroleum Corporation (SPC) – which supplies Ethiopia with gasoline and liquid petroleum, among other oil products – has stopped allowing Ethiopia to purchase on credit. Furthermore, the US Department of Treasury in May 2007 placed the SPC on its sanction list over Sudanese government support for militia groups terrorizing the Darfur region, putting diplomatic pressure on Ethiopia to cease its business relationship with the company.

A senior government official told Fortune that both factors will likely compel Ethiopia to look elsewhere for its oil product imports. According to data available from the Ethiopian Customs Authority, in fiscal year 2005/06 alone, Ethiopia brought in two billion litres of petroleum products, spending about 860.5 million dollars in that year.

Fortune learned that the senior members of Prime Minister Meles Zenawi’s administration, led by Girma Birru, minister of Trade and Industry, left for Saudi Arabia last week. The delegation, which also includes officials such as Yegezaw Mekonen, director general of Ethiopian Petroleum Enterprise (EPE), and Abi Sano, president of the Commercial Bank of Ethiopia (CBE), stayed in Saudi for two days to discuss with their counterparts about the possibility of a credit facility to procure fuel from that country.

One member of the delegation described the visit as a success, but declined to give details on the nature and result of the negotiation.

Up until May 2007, when the US imposed sanctions on SPC, Ethiopia was importing petroleum products from the Sudan through a Letter of Credit (L.C) facilitated by CBE and Citibank. With Citibank now restricted from dealing with SPC, the Sudanese oil company strictly requires Cash Against Document (CAD) for all procurement of the petroleum products that Ethiopia purchases from the Sudan, an official of the Ethiopian government confirmed.

The loss of Citibank as an intermediary in June 2007 even prevented Ethiopia from paying 2.5 million dollars of debt owed to the SPC for petroleum products. Ever since then, relations between the two countries, which have never been easy, have been further strained, the official told Fortune. The Ethiopian government proposed to pay off its due by means of agricultural products, but the Sudanese government has refused to accept the offer.

Reliable data indicates that importing petroleum products from the relative proximity of Sudan, rather than from Middle Eastern countries, saves the government as much as 10 million dollars each year.

By ISSAYAS MEKURIA - FORTUNE STAFF WRITER