By Dicksons C Kateshumbwa
On Tuesday, Parliament passed the bill to grant UNOC the right to supply fuel to the country. There has been a lot of debate, some based on a lack of information. As a former Commissioner of Customs, I am fully aware of the historical dynamics of inbound fuel into EAC over the years. Fuel is a very sensitive and important commodity in an economy. It drives military operations, air planes, industries, and mobility transportation. Any country’s first strategic focus on fuel is to ensure its availability.
Fuel prices are a function of product costs, transpiration, and taxes. Over the years, fuel into the EAC was cleared through the OTS (Open Tender System) coordinated by the Ministry in Charge of Petroleum in Kenya. Ugandan participants in the OTS used to pay the nominated oil marketing companies (OMCs) in Kenya to obtain their share of imports into Uganda. The premiums were sometimes as low as 35 cents per metric ton.
In March 2023, Kenya ditched the OTS arrangement by entering into a G-to-G arrangement with Gulf companies to supply all fuel in the region (including Uganda) at very high premiums, e.g., 118 dollars per MT for AGO (Automotive Gas Oil) and 97.5 dollars for PMS (Premium Motor Spirit). They also negotiated a 6-month credit period in which GOK would pay the Gulf companies after supply.
The 6-month period was to ease the current forex challenges in Kenya, and our Ugandan OMCs would not be allowed to take advantage; they would be required to pay upfront for the fuel so dollars would remain in Kenya for 6 months. This unilateral decision, in my opinion, wasn’t in the good spirit; Uganda should have been involved in negotiations. You cannot earn from Uganda’s fuel volumes on high premiums at the disadvantage of Uganda.
HE President Museveni made the right decision; since we have been ditched, let’s go on our own. Let’s empower UNOC to bring in the fuel. The challenge, though, is that UNOC is not effectively capitalized; they would need 100 million dollars, perhaps for starters, to order directly from refineries. In the government’s wisdom, they looked for Vitol (don’t ask me about the merits or demerits); I focus on the principle.
Vitol or any other supplier will ship the fuel up to Mombasa and pass on the tittle to UNOC, from whom the Ugandan OMCs will buy fuel according to their nominated volumes. Each OMC will pay for its volumes and clear its fuel. Usually, Uganda consumes about 200 liters of fuel per day. The region has been receiving about six fuel ships at Mombasa monthly as regional fuel cargo. Uganda will now receive its two ships.
Dynamics at play
Since middlemen have been removed, they are not happy. Will they attempt to frustrate, Perhaps not, because Uganda is too big to be bullied! However, UNOC doesn’t own any logistical infrastructure facilities in Kenya to clear the fuel. Fuel has to be pumped at Mombasa and cleared through the Kenyan Pipeline System (KPC), so we must negotiate with Kenya.
To ensure efficient clearance and flow of our fuel through Mombasa and KPC. Any delays or frustrations will take away the advantage we are trying to achieve. Kenya is still the most viable route for our fuel, so we cannot afford to engage in megaphone diplomacy but pragmatic dialogue.
Our private sector OMCs: should they celebrate or not? I think it’s a mixed reaction. Some may have cash flow challenges; they used to clear from six ships, so the cash requirements are spread; now they must clear twice. So they have to rearrange their financing mechanisms. Shall we have security of supply? Perhaps yes, because Kenya cannot localize our fuel once it arrives at the port.
But suppose our fuel delays arrive. How do we mitigate shortages?
The government, through UNOC, must negotiate a fuel stock exchange and replacement mechanism with our neighbors. Our needs can be filled with fuel in the system, and it’s reimbursed when ours arrive. Besides, there must be serious regulation and performance measures with the supplier (UNOCs Vitol) to ensure continuous reliability; the margin of error for performance shortages should be close to zero!
The company must stick to the negotiated premiums (which are much lower than Kenya’s) or even aim to reduce them. Ultimately, the government should strengthen UNOC and capitalize on it to give it the capacity to buy fuel directly from refineries. The government also must ensure it strengthens and streamlines regulation. Currently, the down and midstream are regulated by the PAU Petroleum Authority of Uganda, and the upstream by a department in the Ministry of Energy and MD. In my opinion, we should have one regulator for the entire chain. UNOC should focus on its role, resource its staff, and up its game.
The fuel game is tricky; it’s riddled with deep interests. The government taking control in the interest of its people should be plausible, but the government must mitigate potential challenges along the way through bilateral engagements with GOK, experts, and the private sector.
The Dar-es-Salaam option
Over the years, Dar-es-Salaam in Tanzania has made significant investments in the expansion of port infrastructure to facilitate regional trade. For the case of fuel imports to Uganda, Dar-es-Salaam is not a sole option but a supplementary option.
The distance from Dar-es-Salaam to Mutukula is about 1500km. The cost of transportation per cubic meter from Dar-es-Salaam to Uanda is about 120–130 dollars. There is no pipeline from Dar-es-Salaam to Kampala for now, so transportation is by road and partly through the lake via Mwanza.
This road transport journey, on average, takes the truck 5–6 days. On the other hand, via the Mombasa route, fuel is pumped through KPC to western Kenya, that is, to Eldoret, Nakuru, and Kisumu. From there, Ugandan OMCs evacuate to Kampala via a distance of 300 km at a cost of 40 dollars per cubic meter. This route is, therefore, much more viable and cost-effective.
But as a country, we need both routes, and we have to keep pushing for improved efficiency at both ports as well as minimizing logistical costs. Future regional developments, like the pipeline via Tanga, will change the dynamics and lessen the Tanzania route option.
Suffice to note that Rwanda, Burundi, Zambia, and the DRC clear their fuel largely via the Dar-es-Salaam route because of its cost-effective logistics, despite some efficiency (delays) challenges along the way.
In conclusion, we need both ports. They are all necessary. One is not an exclusive substitute for the other. As critical users of the ports who sustain them through our business, we must continuously advocate for their efficiency and lower turnaround times. Japanese ports in 2021 recorded the highest turnaround times of 8 hours, India 22 hours, while our regional ports boast 75 hours. In business, time is money, or rather, expense, which is a component in the determination of the final consumer price.
Hon. Dicksons C. Kateshumbwa is a former Uganda Revenue Authority Commissioner for Customs and Current Member of Parliament for Sheema Municipality.
This content is extracted from @Kateshd on X.
