Review of Uganda's oil industry

Mar 28, 2002 01:00 AM

The Uganda government has so far licensed 15 new fuel pump station companies since 1998 and three others last year submitted their applications to the Ministry of Energy and Mineral Development to start operating in the fuel business. The government explains that applications of the three were being processed. In brief, Uganda has 18 companies operating in the country's liberalised fuel business.
Major marketing companies like Shell Uganda, Caltex Uganda, Total Uganda and Gapco used to dominate the market. "Since 1998, new independent marketing companies notably Petro Uganda, Kobil, Rio Oil, Jovenna, Delta, Hared, Fuelex and Agaba Services among others considerably developed at very high rates," a ministry report reveals.
Oil companies are Uganda's leading tax payers. Uganda Revenue Authority (URA) made it clear to Business Vision, they were bound by confidentiality clauses not to disclose details with regards to their clients. However the importance of this sector can be understood by the fact that in the financial year 1998/99 the industry paid some Sh 193 bn. For 2000/01 this figure rose slightly to Sh 199 bn

Statistics indicate that Shell so far has about 180 fuel pump stations countrywide. In the late nineties, Shell bought the assets and business of Agip Uganda limited and later incorporated this acquisition into Shell Malindi. Shell Malindi reportedly have 41 fuel pump stations outlets in Uganda.
Shell Uganda spokesperson, Fred Kabuye said the company is currently employing close to 1,500 Ugandans. This is the company's permanent staff compared to Total's 90 employees. Total Uganda has 74 pump stations, while Caltex Uganda has close to 150. Gapco has 56 stations, Shell UPET(Shell bought out the government's shareholding in UPET) has 26, and Petro Uganda is close to 35.
Delta, one of the most recent entries in the fuel business has so far built four stations, the same number with Fuelex and Rio Oil. Yusta has one, Kobil, one of the fast expanding entries has 30, Harid has four.Kobil recently took over Jovenna's seven stations.

The department of Petroleum in the Energy Ministry says the new companies have entered the market as a result of the sector being fully liberalised. As more fuel companies join the market, Ugandans have been anticipating the eventual competition to influence the reduction in prices. To the disappointment of everyone, the market forces of demand and supply have not succumbed to this anticipation yet.
"Local pump prices were relatively high, but stable for much of last year. Since January, the pump price for petroleum varied between Sh 1,480 and Sh 1,520. The lowest was in May 2001 of Sh 1,380," a department official explained. The local price level, is a little higher than Kenya's last year.
Prices in Nairobi for January 2001 were reported lowest when petroleum sold at an equivalent Sh 1,138. This kept on increasing to Sh 1,167 as in April and then Sh 1,205 in September. To the Kenyans, the annual price increment was of 68 Uganda shillings. Energy Ministry officials further claimed that fuel pump prices in Rwanda were low compared to Kenya's, because the market there is not as free as it is in Kenya and Uganda. The Petroleum Department says the Rwanda government controls the price margins for fuel.

The Rwanda Ministry of Commerce, Industry and Tourism, the Federation of Private Sector Association of Importers and distributors of petroleum products, all meet to decide the fuel pump prices of the country at a given time period. Notably, fuel pump prices in Rwanda also vary from region to region, depending on the local transport costs.
For instance, the pump price in Kampala may be Sh 1,480 a litre of petroleum. This price would be expected to increase a little in Jinja, because of the cost of transporting it there. The price would further go up if it were transported to Kamuli for instance. Local fuel consumers have been wondering why fuel prices in Uganda were high compared to those in Kenya and Rwanda. They question that transport costs had little impact on the price outcome. Rwanda is reported to import its fuel through Uganda, but its fuel pump price is low compared to Uganda's.

Would the question be that Uganda government is overtaxing fuel importers? The government says, "No! The fuel pump business people may be making supernormal profits. The government only taxes Sh 580 on every litre of petroleum for instance and the tax margin has remained stable since July 1998," an official in the Petroleum Department told. No one has yet established the reason for this situation.
If the reason is centred on the quantities and levels of demand, then who takes the blame? By October last year, fuel companies had sold about 167 mm litres. The year before this, the companies sold 194 litres. In 1999, about 203 mm litres was sold compared to 192 mm in 1998.

However, the government believes that if transport itself has been vital in deciding the destiny of petroleum prices, an oil pipeline venture between the governments of Uganda and Kenya has almost been concluded. The two countries have already signed a Memorandum of Understanding to promote the extension of the Kenya Oil pipeline from Eldoret to Kampala.
A feasibility study was carried out in 1999, eventually finding the project viable. In July the same year, a complementary study was undertaken to update the original study. Its findings were submitted in November 2001, recommending the construction of an eight-diameter, 320-km long pipeline with an annual capacity of 1.2 mm cm.
The capital cost for the entire project is estimated at $ 99.6 mm and the two countries intend to award the project to private developers through a competitive process. This project is expected to result in some major changes in the sector, especially increasing efficiency and hit smugglers where it hurts. Smugglers deny government tax revenue, since all their dubious operations fall outside the tax net. If smugglers are allowed to flourish, it means one less school.

There has been a lot illegal trade in the Uganda fuel business. For the last year alone, smuggling of fuel into the country has been dealt with by a number of arms of government. The bio-code programme was introduced in November 2000. A move that made all officially imported fuel products on market traceable to the end user.
Samples are always taken from fuel pump stations and analysed for dilution and adulteration. "Since January 2001 and as of September the same year, over 3000 samples were taken and analysed. The number of samples and sites found with diluted or adulterated products had fallen from 20 % in December 2000 to 1.5 % in September 2001. This is a sign that dealers fear to be caught with such products," a Petroleum department official said.

State Minister for Energy, Daudi Migereko, recently said the government intends to introduce laboratories to analyse petroleum products that arrive into the country. This is an additional safeguard to limit smuggling that was on the increase in the past couple of years.
Migereko said one laboratory would be mobile and another stationed in either Kampala or Entebbe. "Government wants to move closely with the developments in the petroleum sector," the minister was quoted telling parliamentarians late last year.
In principal, the entire sector has existed without formal and legal procedures in place. Proposals for the new Petroleum Supplies law have been prepared and sent to the Ministry of Justice for drafting into a Bill. The new law is intended to replace the existing petroleum Act of 1964, which the Ministry now considers "obsolete."

Source: New Vision/All Africa Global Media
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