Libya takes over Tamoil's Ugandan oil reserves

The Ugandan Government has given the Jinja national oil reserve to Tamoil, a Libyan oil company. The Cabinet directed the energy ministry to hand over the country's only reserves in a letter of January 7, 2009.
The decision comes at a time when the Government has unveiled plans to construct a 150 mm-litre capacity fuel depot in Kampala to deal with emergencies.

Tamoil is constructing the Kampala Oil Products Terminal as well as the $ 250 mm (Sh 425 bn) Eldoret-Kampala oil pipeline extension project. According to documents, the 30 mm-litre oil facility will be integrated into the pipeline project.
Energy state minister Simon D'Ujanga said the tanks would be part of the pipeline and as such, would automatically be managed by Tamoil.

"In the past it was a strategic fuel reserve, but we are now turning it into an operational fuel reserve," D'Ujanga said. "Initially we wanted a pipeline, but later we said it will be better if it has an operational capacity along the way."
However, the contract was not advertised as required by the Public Procurement and Disposal of Assets Authority (PPDA) Act and as such it can be challenged. The Act prohibits sole sourcing of a public asset, service or goods except in an emergency where the waiver is granted by the procurement authority. Consequently, the energy ministry wrote to the PPDA on January 30, 2009, seeking permission to go ahead with the deal.

Acting permanent secretary Eng. Paul Mubiru said in a letter since the Cabinet had already decided to hand over the tanks to Tamoil, it had to implement the directive. He said Tamoil had the skills and experience in fuel supply and depot operation and had already produced the design for up-grading the facility.
"The cost of repair and restocking will be met by Tamoil," he said. "This will save the Government from having to use its own funds."

Documents show that PPDA wrote back to the ministry in February, saying the issue was outside its mandate. The PPDA said the matter was being handled by a Joint Coordinating Commission (JCC) formed by Kenya and Uganda to manage the pipeline project.
"Any contracting arrangements in respect of the Jinja Storage Tanks and Tamoil are the responsibility of the JCC," acting PPDA boss Cornelia Sabiiti said in the letter. He instead referred the ministry to the Solicitor General for legal advice.

Earlier, the Solicitor General had said that the JCC was acting on behalf of Kenya and Uganda and so its decisions overrode the PPDA Act. Under the current arrangement, Tamoil will build the pipeline, own 51 % of it, and form a joint venture company with the Ugandan and Kenyan governments to operate it for 20 years before surrendering ownership to them.
Uganda started building the oil reserves in Jinja, Nakasongola, Gulu and Kasese in the 1970s. However, only the Jinja one was built with a capacity of 30 mm litres. The facility needed Sh 31.23 bn to refurbish and restock. The Government said it did not have the money and so gave the deal to Tamoil.

The energy ministry has been struggling to raise the Sh 50 bn needed to restock the reserves with at least 20 mm litres of diesel and 10 mm litres of petrol. At least Sh 79 mm was needed to repair the hose pipes, Sh 74.7 mm for the depot repair and Sh 82 mm to transport 3 mm litres of kerosene from Jinja depot to Kampala.
The Government sold 11.5 mm litres in 2002 and realised over $ 37 mm (Sh 64.7 bn) which it used to buy fire fighting equipment for the reserves. The first attempt to restock the oil reserves was cancelled by the PPDA because the energy ministry contravened procurement rules in awarding the contract to Kenlyod Logistics. The project was re-tendered and awarded to GAPCO and MOGAS oil companies. The companies, however, did not sign contracts because the ministry lacked money.

Shortly afterwards, the ministry closed down the empty depot, exposing the country to greater risk of fuel shortage. The Mombasa oil refinery is due to close for renovation in June.
Uganda suffers acute oil shortages whenever there is a disruption in the supply line from Kenya. Over the last five years, the country has suffered shortages in December, January, March, April and in June. Uganda relies on oil companies whose limited facilities can hardly store fuel to last the country 10 days. Uganda consumes 2.2 mm litres daily and demand grows by 7 % annually.

The new management is expected to renovate and increase the capacity of the existing oil reserves, buy new equipment, build three new tanks and install a computerised monitoring system. Tamoil won the right to build a $ 60 mm liquid petroleum gas storage facility in Mombasa in 2007 under a deal which caused a public outcry as the Kenya government carried out sole sourcing.
The Libyan firm is also investing $ 300 mm in upgrading the Mombasa refinery, which serves the entire East Africa market with refined products.

The relinquishing of the country's only oil reserves by the Government also follows several failed attempts by energy ministry last year to restock the tanks. Political interference coupled with the refusal of Parliament to approve the Sh 45 bn requested by the energy ministry to restock the reserves bogged down the project.
The Auditor General too declined to issue an Audit Warrant for the Sh 45 bn, arguing that the expenditure would have risen beyond the 3 % government's supplementary ceiling.