Why Government is Moving to Monopolise Fuel Supply

by Christopher Kiiza
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Uganda Government is on the move to monopolize fuel supply to the country over rising fuel prices.

In recent months, Uganda has been grappling with the alarming surge in fuel prices, causing distress among citizens and a ripple effect on the country’s economy.

Fuel prices have skyrocketed, with petrol pricing at Shs 5,400 per liter and diesel at Shs 4,800 per liter.

Last month, the Speaker of Parliament, Anita Among put the Government to task over the escalating fuel prices, but the Minister of State for Energy, Sidronius Okaasai Opolot said government would continue with its non-interference approach on commodity prices, which left MPs dissatisfied.

“Uganda operates a liberalised downstream petroleum market, where pump prices are determined by the forces of demand and supply as guided by the Petroleum Supply Act of 2003 and Petroleum Supply General Regulations (2009) with amendments of 2012 and 2018,” Okaasai told Parliament on September 5, 2023.

However, the government has since changed its view on the matter, but its response to this crisis has taken a controversial turn, as it embarks on a strategic shift toward monopolizing the nation’s fuel supply.

The Government announced that it will be taking over the importation and distribution of fuel in the country in an effort to stabilize rising fuel prices.

The Minister of Energy and Mineral Development, Ruth Nankabirwa informed Parliament last week that the move is expected to come into effect in January 2024.

“Colleagues (MPs) are aware of the system we go through; the open tender system in Kenya where at times, Kenya chooses to allocate products destined to Uganda to their own local companies. So, we want to come out of this. I will bring an amendment for the Petroleum Supply Act to support the Uganda National Oil Company (UNOC) in this endeavor,” Nankabirwa told Parliament last week.

The current fuel import and distribution system is inefficient and prone to manipulation by private companies which leads to unjustified price increases and shortages at the pump. By taking over the fuel supply chain, the government hopes to streamline the process and ensure that fuel is available at affordable prices to all Ugandans.

The law which the Minister is bringing is a Bill amending the Petroleum Supply Act of 2003. The Bill was passed by Cabinet on Monday last week.

Under the new law, UNOC which is a government owned company will be responsible for importing fuel into Uganda.
Government’s move caused mixed reactions at the floor of Parliament, with various lawmakers questioning its feasibility.

Bunyole East MP, Yusuf Mutembuli said to Nankabirwa, “at first you said Uganda is operating a liberalized economy, and later we are creating a monopoly. Explain to us further how the two will work.”

The Napak District Woman Member of Parliament, Faith Nakut said, “it is sad to note that Uganda is at the mercy of Kenyan importers. The question I have to the Minister is, what is it that is making it difficult for UNOC to become an importer?”

The Deputy Speaker of Parliament, Thomas Tayebwa questioned the feasibility of the move taking effect by January 2024.

“If this requires us amending the Petroleum Supply Act, and you [Minister Nankabirwa] are saying that by January 2024, UNOC will be having that duty, we have only two months [left]. I am looking at how feasible it is. For you to bring a law, it takes 45 days in the Committee [on Energy], we debate it here [on the floor of the House]. We have been sending Bills to President, and we know how long he takes to assent,” said Tayebwa.

Impacts of Monopolising Fuel Supply

Some critics have raised concerns about the potential implications of government monopolization of the fuel sector. They argue that the move could stifle competition and lead to higher prices in the long run.

It is also noteworthy that the government has a track record of inefficiency and mismanagement in other sectors, and there is no guarantee that it will be able to run the fuel sector more efficiently than the private sector.

Senior Makerere University economist, Dr Fred Muhumuza says the government move could cause unavailability of fuel which is more dangerous than high fuel prices.

“You want to get worried that we shall get from a level where we are discussing the price of oil, and begin to discuss the availability of oil. That is even more dangerous. You don’t want a monopoly that will fail the flow of the oil. The law was trying to cure that; contingent risk that you might get to a petrol station and there is no oil. We have seen people with jerrycans in Zimbwabwe, in Zambia. Even in Uganda, we have had long lines [at fuel stations]. You don’t want to go back that your monopoly failed to deliver and there was no alternative,” he said.

It is worth noting that there is multiple fuel stations that have many times run out of fuel due to inconsistent in the fuel supply chain. This worsened at the height of the Russia – Ukraine war which caused global fuel supply shortages and skyrocketed fuel prices across the world.

The fact that various fuel stations have various suppliers, not all stations can run dry, and while this leads to price increases, it at least ensures fuel availability.

“If it was a monopoly, you can literally get into Kampala and there is no fuel, and you don’t even have enough fuel in the tank to take you home. You are going to get stuck between that point and home. Before you you realise, the road is littered with vehicles. So, we want to avoid that situation where we stop discussing the price, and we discuss the availability,” said Muhumuza.

It should as well be noted that hospitals use generators to conduct various sensitive and life saving activities such as surgeries when power is off.

One would therefore have fear about what would happen to hospitals if there was no fuel in the country, and power was off.

It should also be noted that fuel prices in Uganda are determined by the international factors.

Muhumuza said, government intervention should be to regulate spikes in fuel prices, but not to change the trend.

Also to note is that President Museveni made it crystal clear that when Uganda begins producing oil (probably 2025), it will not be cheaper, but rather priced on international factors.

“When the war ends in Ukraine, the prices will likely remain high. Even our own petrol, when we start getting it here, we cannot sell it cheaper than the world price. We shall have to sell it at the price of the world price, minus the transport costs because this will be near here. But it will a little bit cheaper because of removing the transport costs, but it will still be higher than it was in the past,” said Museveni while addressing the nation on July 20, 2022.

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