Inside Govt-Vitol Fuel Deal: Will Prices Drop?

by Christopher Kiiza
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The Ugandan government is currently in the process of finalizing a substantial multi-billion-dollar agreement that would confer exclusive monopoly rights to Vitol Inc., a Swiss-based Dutch firm specializing in energy and commodities trading. This deal entails Vitol Inc. becoming the sole supplier of all petroleum products to Uganda.

The Government says this will improve security of supply and result in lower fuel prices, and has already tabled before parliament, the Petroleum Supply (Amendment) Bill, 2023. The Bill seeks to amend certain provisions of the Petroleum Supply Act, 2003 by among things empowering the state-owned company, Uganda National Oil Company (UNOC) to import petroleum products for the Ugandan market and contribute to the reduction of the pump price by eliminating unwarranted transactions in the supply chain.

The arrangement will work in a way that Vitol Bahrain, a subsidiary of Vitol will source for and supply UNOC all petroleum products needed in the Ugandan market. UNOC will in turn sell these products to private oil marketing companies such as Vivo (Shell), Total Energies, Stabex among others.

The Bill and the agreement between government and Vitol, therefore, gives greenlight monopoly rights to Vitol to import petroleum products to Uganda for UNOC.

While tabling the Bill during the plenary sitting of on October 31, 2023, the Minister of Energy and Mineral Development, Ruth Nankabirwa said the Bill will cure the lacunas in the existing law, and will go a long way to mitigate the sudden shortages in oil products and the eventual increase in prices.

“The existing law does not empower the Uganda National Oil Company Limited to supply all imports to the licensed oil marketing companies of petroleum products for the Ugandan market. This gap in the Petroleum Supply Act has threatened the security of supply of petroleum products in Uganda,” she said.

She added: “Effective January 2024, the oil marketing companies will be directly supplied by UNOC which will improve security of supply and result in competitive prices.”

However, doubts have been raised about the feasibility of this plan, as critics argue that giving exclusive rights to a foreign company (Vitol) to import petroleum products for UNOC, could jeopardize the nation’s sovereignty and pose significant economic risks if the company fails to fulfill its obligation to supply the necessary petroleum products.

The Bill is now before the Parliamentary Committee on Environment and Natural Resources for scrutiny.

Will Govt-Vitol Deal Reduce Fuel Prices?

The agreement between government and Vitol has been challenged by industry players and Members of Parliament, questioning its feasibility to ensure decrease in fuel prices at the pump.

Perez Anyemaho, Director, HEK International Limited says, “when you look at Vitol [arrangement], you are not going to get a proper negotiation between the country (UNOC) with the supplier. So, you can never have the better price.”

He advises that if government’s motive is indeed to ensure reduction in fuel prices, the best move is to directly talk with the refinery.

“Once the opportunity comes out and government is straightly speaking to the refinery, you will have always the best prices,” he said.

MPs on Committee on Environment and Natural Resources have also raised alarm bells that government’s move to contract Vitol as a monopoly will potentially keep fuel prices high thus failing to achieve the objective of slashing fuel prices.

“As long as Vitol is there, and UNOC is getting from Vitol, tell me how I will go and get cheaper fuel from the petrol station? The price is already controlled by Vitol,” said Polycap Ogwari, MP – Agule County.

The agreement would also deny Ugandan consumers advantages that come with competition such as good pump prices.

Rubanda MP, Moses Kamuntu said, “It is imperative to enact laws promoting competition to prevent the creation of a monopoly. Allowing Vitol to become a monopoly will be detrimental, as it would not contribute to price reduction, and our decisions will face scrutiny from Ugandans.”

Lawmakers also criticized the move, calling it double monopolization yet Uganda has a liberalization policy.

Bungokho North lawmaker, John Magolo said, “we have had challenges with monopolies and they are glaring.”

But are there risks involved in this deal that could cost government heavily?

Critics say that for any country to depend on one company (Vitol) to solely source petroleum products from the refinery is very risky.

If Vitol fails to fulfill its obligation to supply the necessary petroleum products yet it has monopoly rights for the job, could turn disastrous for the country as it creates fuel shortages leading to high prices.

Although a number of lawmakers support local monopolization of the supply of petroleum products by UNOC, they argue that greenlighting monopoly rights to Vitol to import fuel is a wrong move.

However, the Attorney General, Kiryowa Kiwanuka told lawmakers that government will be free from all the risks involved in shipping petroleum products overseas.

He also explained that the agreement will only become operational after the passing of the Petroleum Amendment Bill 2023.

“While this may raise concerns among Members of Parliament, the agreement’s enforcement is contingent on the passage of the Petroleum Amendment Bill 2023.” Kiryowa said.

Uganda is currently a net importer of petroleum products, where more than 90% are imported through the Port of Mombasa in Kenya and the rest through the Port of Dar-es-Salaam in Tanzania.

The importation is done independently by the licensed Ugandan oil marketing companies through the importation structures in Kenya and Tanzania.

This, according to Nankabirwa, has exposed Uganda to occasional supply vulnerabilities where the Ugandan oil marketing companies are considered secondary whenever there were supply disruptions. These vulnerabilities, the Minister said, paused additional challenges, resulting in Uganda receiving relatively costly products and ultimately impacting the retail pump prices.

Meanwhile, Members of Parliament expressed concerns about Vitol, emphasizing its questionable track record with continued price hikes in its costings.

It is worth noting that in December 2020, Vitol faced a $135 million fine from the United States. This penalty followed a federal investigation revealing that, for more than 15 years, Vitol had been making “millions of dollars in bribes to various public officials” in Brazil, Ecuador, and Mexico to gain unfair competitive advantages, leading to substantial illicit profits for the company.

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