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Ministry of Energy Downplays Impact of Direct Imports on Dropping Fuel Prices

The country's demand for petroleum products has also increased from the previous 180 million litres a month to more than 230 million, with UNOC responsible for all the imports, save for aviation fuel.
15 Oct 2024 12:54
A gas fuel station on Monday night
Fuel prices in Uganda have been dropping over the last few weeks amidst volatility in the global crude oil market mainly caused by the Middle East conflicts and weather storms in the USA.

By the opening of the week, pump stations in Kampala were selling a litre of l petrol for as low as 4,740 Shillings, with the two majors; Shell (operated by Vivo Energy) and TotalEnergies quoting prices lower than 5,000 Shillings a litre at some stations for the first time since December 2021.

By Monday, diesel was selling between 4,400 and 4,600 Shillings, a drop of an average 200 per litre in about a month.

Until two months back, the cost of a litre of petrol had stagnated between 5,150 and 5,500 Shillings depending on the fuel station, having dropped from the highs of 6,000 Shillings that immediately followed the immediate reopening of the economies after the COVID-19 to the pandemic.

The Uganda National Bureau Statistics (UBOS) also reported a fall in the Energy, Fuel and Utilities annual inflation between August and September 2024 from 4.7 to 4.5 percent, with "Liquid Energy Fuels Inflation" specifically down to negative 2.0 percent.

“This was driven by prices of Petrol and Diesel that decreased by minus 2.2 percent compared to 6.7 percent in August 2024 and minus 2.6 percent compared to 0.8 percent in August 2024 respectively,” said UBOS. 

The statistics show 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 from the 0.6 percent drop recorded in July.

So, why are fuel retail prices in Uganda falling? 

The overall drop in crude prices has coincided with Uganda's direct importation of products through the  National Oil Company (UNOC).

In July 2024, UNOC delivered its first 80 million litres, starting what would be a game changer in the supply and cost of petroleum products in the country, eliminating what has been considered the biggest bottleneck, "Kenyan middlemen". 

It followed a directive by President Yoweri Museveni to the cabinet to work on the option of Uganda dealing directly with the refiners on the international market, leading to a deal between UNOC and Vitol Bahrain, an energy products distribution company.

However, according to the Ministry of Energy and Mineral Development, there is not yet evidence to tag the price falls on this government intervention.

According to the Ministry's head of communication at the ministry, Assistant Commissioner Patricia Litho, UNOC has now taken over the full importation of fuel products into the country, save for aviation fuel.

"No. There is a global downward decline in pricing, it is too early to credit UNOC," says Dr Litho, adding that more time is needed to do an analysis.

The country's demand for petroleum products has also increased from the previous 180 million litres a month to more than 230 million, with UNOC responsible for all the imports.

"However, it ought to be noted that the UNOC is bringing in all products 100 percent apart from aviation fuel. Over 234 million litres were consumed in September 2024," she told URN.

Crude prices also fell from more than 120 Dollars a barrel to around 80, but have since plummeted further.

On Tuesday, however, crude oil prices slid as much as 3 Dollars on the back of a weaker demand forecast and after it was reported that Israel was willing not to strike Iranian oil targets, which eased fears of a supply disruption.

US and European market crude prices were both down to between 70.5 and 71.2 dollars a barrel.

However, this has been affected by the war on Gaza by Israel which has drawn the intervention of Iran, a major producer, slowing down the fall in prices, according to analyses.

Retaliatory attacks on Lebanon, Iran and Syria have sparked fears of a full-blown war between Israel and her neighbours, causing speculation of forcing prices further up on fears of oil production disruptions.

In a cautious approach to managing the expectations of Ugandans on the impact of the move, UNOC explained that the intention was more about ensuring stable supply than low prices since it was not in the retail business, nor could it directly the marketers to set specific prices.

This was because companies incurred various other operational costs at different rates.

Unlike Kenya and Rwanda, Uganda maintains a liberalised market policy, with companies having far-reaching freedom to set prices.

In Kenya, the Energy and Petroleum Regulatory Authority maintained the maximum prices for September to October 2024 at 5,368 Shillings (188.84 Kenya shilling) for a litre of petrol and 4,850 (171.6) for diesel. 

At the beginning of October, the Rwanda Utilities Regulatory Authority set the maximum price for petrol at 4,100 shillings (1,574 francs), and 4 shillings less for diesel.

For more than 70 years, Ugandans had their fate sealed in the hands of Kenya-bases oil marketing companies regarding supply reliability and prices, from the time when Royal Dutch Shell, Total, Agip, ESSO and Caltex imported a few hundred thousand litres to currently when dozens distribute 234 million litres monthly.

This governmental intervention was prompted by Kenya's policy shift from the Open Tender System to the Government-Government approach, a process deemed overly prolonged with numerous stakeholders whose profit margins could impact pump prices. 

Almost 90 percent of Uganda's petroleum imports currently move through Kenya, accounting for approximately 2.5 billion litres valued at about 2 billion US Dollars annually.

The government also plans to have the Tanzanian route developed for even cheaper and more stable supplies.

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