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Uganda’s pump prices have started going down after the government took over the mandate of sourcing and importing of petroleum products.
This week, some fuel stations managed by petroleum giant, Vivvo Energies Uganda (Shell), have been selling petrol at Shs 5,190 per litre from above Shs 5,300 in July.
In Naalya, Kampala, Vivvo has been selling a litre of diesel at Shs 5,050 per litre from above Shs 5,200 last month.
The Uganda National Bureau Statistics (UBOS) reported at the end of August that “Diesel prices decreased by 1.4 percent in August 2024 from the 1.3 percent drop recorded in July 2024 and Petrol prices decreased by 2.0 percent in August 2024 from the 0.6 percent drop recorded in July 2024.”
Issa Kietoo, marketing manager at Stabex Uganda, one of the dealers, was recently quoted as saying oil marketing companies are now saving Ush100-Ush150 ($0.027-$0.040) on each litre of fuel landed in the country after the elimination of Kenya middlemen and the strengthening of the shilling against the dollar.
In December 2023, UNOC assumed full responsibility for the importation of petroleum products following President Museveni’s signing of the Petroleum Supply (Amendment) Act, 2023.
This was prompted by Kenya’s policy shift from the Open Tender System (OTS) to Government-Government (G2G), a process deemed lengthy with numerous stakeholders whose profit margins could impact pump prices.
In March 2024, the Energy and Petroleum Regulatory Authority of Kenya handed UNOC a license.
Uganda said direct imports of petroleum products would address Uganda’s security of supply, capacity building for UNOC and reduce the pressure on the national treasury”.
UNOC distributes the products, which include petrol, diesel, jet fuel and kerosene to oil marketing companies (OMCs).
Supply chain
Energy Minister Ruth Nankabirwa recently said the direct importation of the petroleum products by UNOC will eliminate the unwarranted transactions within the supply chain.
“Part of the cost savings made by UNOC will be transferred to the OMCs and we believe that they will in turn transfer some of the benefits to the consumers at the retail pumps,” said Nankabirwa.
Vitol, a Swiss based Dutch firm, won the contract to supply all petroleum products to Uganda.
Nankabirwa said the policy shift in the management of petroleum imports would “see a saving in logistical costs.”
She further said that changes in global oil prices will not significantly affect domestic prices as it has been the case in the past.
While the pump prices of diesel and petrol have dropped in recent weeks, government would want to see them below Shs 5,000.
“Therefore, I am calling upon the OMCs, really, to reflect this in pump prices. Let them not make exorbitant prices. Because we know what they are doing,” Nankabirwa observed.
The Economic Research and Policy Centre at Makerere University previously reported that while in a liberalized economy like Uganda, prices of goods and services are determined by forces of demand and supply, there is room for collusion and setting of higher prices by firms with a commanding market share.
“This forces other small companies to follow suit. In the case of Uganda, the fuel retail market is dominated by two big players (Vivvo and Total Energies),” said EPRC.
In Tanzania, the government intervenes in price negotiation to stabilize fuel pump prices so that it’s affordable to Tanzanians.
EPRC said market forces of demand and supply are not working well for Uganda.
“Therefore, the government should intervene in price negotiation with key players in the fuel business, to have fuel prices reduced,” said EPRC, adding, “Further, the government should come up with a regulated price and an act that prohibits selling fuel above the government regulated price, especially during supply shocks.”
UNOC recently explained that “the final retailing prices may differ from one OMC to another based on the extent of logistical, network, and operational costs.”
Competitive prices
However, Nankabirwa argued that, “Once you do away with those who have been chopping from these longer routes (Kenyan middlemen) to a shorter route – say Vitol to UNOC to OMCs, there is a reduction in costs of logistics. The routes have been shortened internally which should lead to lower prices.”
UNOC said it negotiated competitive product costs with the supply partner and included clauses in the Agreements to ensure the product cost to Uganda always remains competitive.
“UNOC’s sole importation mandate requires it to transact directly with the Ugandan Oil Marketing Companies (OMCs) involved in the product importation,” said UNOC.
“The Ugandan OMCs will be given a competitive price against each vessel import,” said UNOC, adding, “With the shifting of the business from Kenya to Uganda, the product cost is expected to stabilize and increase competition between the OMCs in the Ugandan market to the benefit of the consumers.”
UNOC will import 180 metric tonnes of fuel products. One metric tonne is equal to 1,000 litres, implying that 180 million litres of fuel will be imported by UNOC.
According to the Ministry of Energy, Uganda consumes about 6.5 million litres of fuel products per day. The 180 million would be sufficient for close to a month.
Over 90% of Uganda’s petroleum products, totalling approximately 2.5 billion litres valued at about US$2 billion annually, are imported via Kenya infrastructure-ports, KPC and roads
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