Questions mount as House passes oil Bill

There is controversy swirling over the passing of the Petroleum Supply Amendment Bill 2023 early this week during the plenary after a lawmaker contested the validity of the majority report from the Environment and Natural Resources committee.

During debate, Mr Yusuf Mutembuli (Bunyole East) raised a procedural objection before Speaker Anita Among, claiming that some lawmakers who signed the report were not present during the committee proceedings.

“I have had the benefit of reading the decision of Zaake [Francis] against the Attorney General as far as the issue of attendance and signing of reports is concerned. Before you sign on the report you must have attended,” he said.

 “If we proceed to just assume 22 have signed when actually out of 22, few have attended or 10 have signed yet few of them attended then, Rt Honourable Speaker, we shall be proceeding contrary to guidance given by the Constitutional Court in the case of Zaake against the Attorney General.”

Rule 204(3) of the Rules of Procedure states that in case of a complaint as to the authenticity of a report, the Speaker shall halt debate on the report and refer the matter to the Clerk to Parliament for investigation, who shall report back to the Speaker before the next sitting.

But the Speaker rejected Mr Mutembuli’s argument. The record of attendance for the Environment and Natural Resources committee seen by Sunday Monitor  shows glaring discrepancies.

Some MPs who purport to have signed the report—namely Ms Joyce Acan Okeny, Mr John-Bosco Ngoya, Ms Juliet Agasha, Ms Juliet Bashiisha, Mr Alex Ruhunda, Mr Ssemwanga Gyavira, Mr David Karugaba , Ms Flora Natumanya, Mr Fredrick Angura Abdu Adidwa, and Mr Eric Musana—are not recorded in the attendance register.

In light of the September Constitutional Court ruling on Zaake’s impeachment, which found that Parliament breached its rules of procedure in red-flagging the Mityana Municipality MP without quorum, in amending the committee report, this raises grave concerns about the legitimacy of the report and questions the validity of the process that led to the passing of the Bill in the House.

If assented to by the President, the Bill will grant a monopoly to the Uganda National Oil Company (Unoc) or such other person nominated by the minister, with the approval of Cabinet, to import all petroleum products, namely super petrol, diesel, jet A1 and dual-purpose kerosene, destined for the Ugandan market.

However, because Unoc lacks the financial resources to purchase petroleum products directly from international refineries, it has signed a five-year deal to buy fuel from Vitol Bahrain, a subsidiary of Vitol Group.

Vitol is one of the largest oil traders internationally and is headquartered in Rotterdam, Netherlands. It shall finance the supply of fuel up to the delivery points in Kenya and Tanzania, and per the committee report, this deal will be on a non-immediate cash payment.

Monopoly concerns

There are fears that if the Bill is assented to and gazetted, it will create a monopoly in the supply chain.

This monopoly, which comes on the heels of the Competition Bill 2022 that was passed during the plenary in May but is yet to be assented to, prohibits monopolies and promotes fair competition in markets.

Further, per the minority report, the Bill violates the Comesa Competition Regulations 2004, which promotes and encourages competition by preventing restrictive business practices and other restrictions that deter the efficient operations of markets thereby enhancing the welfare of consumers in the common market.

The Bill also contravenes the EAC Competition 2006 whose objectives include protecting all market participants’ freedom to compete by prohibiting anti- competitive practices.

It is this context that informed an ongoing court application in the Kenyan High Court seeking an order against the Energy and Petroleum Regulatory Authority (Epra) issuing a petroleum importation licence to Unoc pending the hearing and determination of the court petition.

However, Mr Peter Muliisa, the head of legal and corporate affairs at Unoc, believes the Bill will not signal the death of competition in the supply chain.

“In the Act I believe Section 30 (1) still maintains the need for competition within the retail segment of the petroleum value chain downstream. So, at the retail level, in storage, logistics there will be competition,” Mr Muliisa said.

Fuel imports are a drain on Uganda’s already strained foreign reserves, with the Central Bank’s data revealing that Uganda imported $1.6b (Shs6 trillion) worth of petroleum products in 2022 or 12.5 percent of the national budget.

Middlemen

By enacting the law, the government hopes to elude three layers of middlemen in the highly intricate supply chain between the overseas oil refineries and the Ugandan oil marketing companies (OMCs).

According to the committee report, the first layer of middlemen are companies, including Aramco, Adnoc and Enoc, which trade directly with overseas oil refineries.

They sell to the second layer of companies such as Oryx Kenya, Gulf and Galana. These subsequently trade with the third layer of companies such as Total, Vivo, Stabex, Rubis, City Oil and Hass. Each layer of suppliers charges a profit margin that pushes up the fuel pump price.

In the new arrangement established by the Bill, Vitol will trade directly with the refineries and supply UNOC that will in turn supply the Ugandan OMCs.

But there are fears that this will create two layers of middlemen—Vitol and commission agents who are eager to feather their own nests.

Per the committee report, a typical oil refinery requires a standby letter of credit or a bank guarantee issued by one of the top 50 banks in the world to supply. In Uganda’s case, the current import demand of approximately 2.5 billion litres means the country would require a bank guarantee of at least $1.5 billion (Shs5.64 trillion). This appears a Herculean task given the country’s current financial strain.

“Unoc […] is seven years old, so it is genuine for people to have concerns about whether we have the capacity to import the products—first financial [capacity] and the technical capacity,” Mr Muliisa conceded.

“But what we have excelled at and what we set out to do is to partner strategically. We work with entities that have done certain things before and quickly learn from them,” he added.

Good tidings?

Mr Muliisa said: “It is unlikely the consumer will feel the change or even notice. Because the products will keep coming from Mombasa and Dar-es-Salaam and they will continue to come smoothly.”

In exceptional circumstances such as where Unoc fails to import and supply petroleum products in any given month, or where it becomes insolvent, the Bill suggests that the minister may by statutory instrument nominate such other person, with the approval of Cabinet, to import and supply all or a portion of petroleum products.

This provision seems to be a concession to concerns about the anti-competitive nature of the Bill. It also foresees a scenario where Unoc is in financial distress. Unoc’s financial capacity or lack of it was the subject of much of the debate.  It is not clear how Unoc, which is chronically underfunded, may raise capital for the purchases as fears grow that this may fuel the government’s growing appetite for borrowing.

No transparency

Single sourcing Vitol and the lack of transparency in the process by which Vitol was identified and contracted is another cause for concern.

The minority report observed that this flouts provisions in the Public Procurement and Disposal of Assets Act, which provide for open, competitive bidding.

The minority report argued that had the government advertised, a number of entities would have expressed interest and the country would have got the most competitive offer.

If the government’s previous attempts at single sourcing in the fuel supply chain are anything to go by, concerns about the Bill are legitimate.

In the wake of the 2007 political violence in Kenya which disrupted fuel supply in Uganda, a company trading as Kenlloyd Logistics, linked to Sam Kuteesa’s son-in-law, won a Shs44 billion contract to restock the oil reserves in Jinja, in a less than transparent process that was eventually halted by the Uganda public procurement authority on the grounds that the Energy ministry contravened procurement rules when it used selective tendering instead of open bidding. 

Further unease about the deal is informed by the reputation of Vitol Group to which Vitol Bahrain EC belongs. According to the Exporting Corruption-Progress Report 2018, in 2016, the Paris Court of Appeal overturned a lower court decision and found the French company, Total, and the Swiss-based Dutch company, Vitol, guilty of corruption of Iraqi foreign public officials in connection with the United Nations Oil-for-Food programme in Iraq. The court fined Total €750,000 and Vitol €300,000.

MORE CONCERNS

The minority report attributed the fluctuating fuel pump prices to the fact that although the Section 26 of the Petroleum Supply Act requires every licensee to maintain minimum working stocks of petroleum products as prescribed by regulations in order to ensure continuity to petroleum supply, these regulations are not in place. Secondly, the absence of bulk and efficient transportation leaves OMCs with only one option of picking products from Kenya by trucks.“All fuel in Uganda, steel, cement was moved by rail and by water. So Total and Shell at the time had what they called carbo tank wagons, 20, 30 coming at ago, with the railway directly[...] so fuel was coming by the two cheapest means of transport by rail and water, what Capt Mike Mukula is trying to do. That is the cheapest way to bring fuel,” Mr Biraahwa Mukitale, a politician,  said.Further, petrol, diesel, aviation fuel and kerosene attract an excise duty. For each litre of petrol there is an excise duty of Shs1,444 and Shs1,140 on diesel. Observers believe that addressing these cost drivers will remedy the fluctuating fuel pump prices. Uganda has spurned opportunities in the past to remedy its vulnerability to fuel price shocks. For instance, in 2011 Uganda terminated the TAMOIL pipeline project that was meant to deliver oil from Eldoret to Kampala. There are also fears that the Port Bell jetty in Luzira could turn into a white-elephant.

The jetty was designed to provide a solution to the problem of bulk transportation of petrochemicals from Kisumu on Lake Victoria rather than from Mombasa and Eldoret by road, which is costly.