Business

Weak Shilling pushes fuel prices up

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A fuel truck destined for Kampala. A weakening shilling has partly led to increased fuel prices. FILE PHOTO 

By  Dorothy Nakaweesi

Posted  Thursday, March 27  2014 at  02:00

In Summary

Factor. Depreciating shilling attributed to aid suspension by donors.

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Kampala.
Tough times are ahead as the depreciating Shilling pushes up the price of fuel, something that analysts say will see the cost of living go up.
Bank of Uganda opening market yesterday placed the dollar at 2560/2570, indicating a more than Shs70 increase compared to what it traded at the beginning of last week.

Experts in the market have attributed the depreciation of the local unit to the speculations following the donors’ announcement to suspend aid after the enactment of the Anti-Homosexual Act.

In an interview with the Daily Monitor, the Bank of Uganda Director Research, Dr Adam Mugume, said: “It is true the Shilling has lost ground largely because of speculative reasons and also the overshooting behaviour of the exchange rate once the market experiences a slight disruption.”
“The market interpreted this as an indicator that forex market would be tight and this subsequently resulted in some rapid depreciation pressures than anticipated,” he added.

The ripple effect of the depreciating shilling is causing motorist to dig deep into their pockets to refuel.
At the close of business yesterday, a litre of petrol had reached Shs3,750-Shs3,800 up from Shs3,600 -Shs3,700.
Experts say that, fuel being a complimentary commodity, its price hike is destined to affect all sectors.

However, traders are not satisfied with the explanation the oil companies are giving about the depreciating Shilling saying this is greed.
“When the Shilling was appreciating, the oil companies did not reciprocate by reducing the fuel prices. We are not seeing the international prices going up either; why now when there is depreciation?” Mr Everesto Kayondo, the Chairman Kampala City Traders Association, pondered.
He said that it could be a hidden motive by the fuel companies to transfer the extra cost they are incurring while clearing the goods under the Single Customs Territory (SCT).

Speaking to this newspaper last week, some fuel companies said that under the SCT, companies have to have the money readily available to pay up for all the cleared goods unlike before when they would clear trucks as they come.

“Under the SCT, we now have to have extra cost of financing to clearing the cargo but this is just minimal,” said Hashi Energy’s Peter Ochieng.

dnakaweesi@ug.nationmedia.com