Fuel prices: What is the status of reserves?
What you need to know:
- According to documents before Parliament, between May 2017 and August 2021 a number of clauses, have been breached and a consortium that manages the reserves has been rewarded with deletions of clauses.
Uganda has a 30 million litre fuel storage facility in Jinja. It holds reserves equivalent to 4.6 days of fuel stocks, going by daily consumption of 6.5 million litres.
Government is meant to ensure that the reserves have at least 12 million litres - which is 40 percent - of the total 30 million litres capacity.
Approximately 180 trucks or 6.5 million litres enter Uganda every day.
Data from Parliament based on URA’s truck arrival show that Uganda had received more fuel volumes than in six months in the run up to the fuel crisis.
At least between December 1 and 31, 2021, URA cleared an average of 122 fuel trucks per day while by the end of January they grew to an average of 126 trucks, which was much more than the daily average of 122 fuel trucks.
The Parliament committee on Trade, Tourism and Industry was informed by the Uganda National Oil Company (UNOC) that Uganda imports all its fuel and in the event of logistical or regulatory challenges transit of fuel to Uganda is affected.
Genesis of the fuel crisis
In 2012, government and Hared Petroleum signed a concession to refurbish, restock, maintain and manage the petroleum strategic reserves in Jinja.
Under the agreement, Hared was required to manage the facility for 10 years, building up fuel reserves in just six months of signing.
The concession also required that the reserves are stocked with 40 percent or 12 million litres at all times to mitigate any supply shortfall.
However, by September 2015, an audit report indicated that the fuel reserves were only stocked with 274,000 litres of petrol and 331,000 litres of diesel and had never been stocked with the required 40 percent.
UNOC takeover of fuel reserves
Therefore, in May 2017, the Energy Ministry handed the reserves to UNOC, a limited liability petroleum company, owned by government, which was established under the 2013 Petroleum Exploration, Development and Production Act.
According to a report from Parliament, UNOC was entrusted with restocking, operating, managing and maintaining the reserves as a strategic asset, which was emphasised in a handover letter dated May 27, 2017.
On May 31, 2017, UNOC entered into a joint venture agreement with a consortium of three companies, among them One Petroleum, One Petroleum (U) and Mbaraki Bulk Terminal for the management and operation of the reserves and storage terminals after winning a bidding process.
Under the joint venture, the consortium would stock the reserves to full capacity by July 31, 2017 with an equivalent of 30 million litres as well as ensuring that the facility, at all times, has not less than 40 per cent of the storage capacity.
However, in his presentation to Parliament, Mr Mwine Mpaka, the Trade, Tourism and Industry committee chairman, observed that whereas the Ministry of Energy had handed over the reserves to UNOC on May 29, 2017, it had in fact on May 9, 2017, 20 days before it received legal possession of invited bids to manage the facility that was not in its possession legally.
It was further observed that UNOC evaluated the bids and selected a consortium just two days after the handover letter and before receiving the handover report, which was due in two weeks’ time, as per the letter dated May 29, 2017.
It was further noted that whereas the agreement was signed on May 31, 2017 for a period of 10 years, the first addendum, which extended the contractual period by five years, was signed on August 1, 2018, just a year into the 10-year agreement.
In the second addendum, the consortium had been expected to design and develop a lake transport system at the Jinja Storage Terminal to transport of petroleum products over Lake Victoria at its own cost. However, this, had also appeared in the first addendum.
Until recently, the committee, observed that the Minister of Energy wrote to the Finance Minister just on January 18, 2022, communicating a decision of Cabinet to finance UNOC up to a tune of $30m (Shs107b) to commence the process of procuring fuel reserves for five days.
This was in addition to $8m (Shs28b) for construction of a jetty and pipeline system, so as to connect the terminal to Lake Victoria and therefore, deliver fuel by barges from Kisumu.
However, the committee noted that it amounted to government undertaking an obligation of the consortium under the joint venture agreement with UNOC. Thereby attempting to duplicate and causing financial loss to government.
The committee also observed another addendum was signed in August 2019, deleting a clause, which required that the reserves are maintained with a 40 percent reserve capacity while another clause, which requires government, through UNOC to pay the consortium for storage in the facility, was introduced.
“It means that even if we want to store fuel in the reserves, we now have to pay over Shs5.5 per litre that we store there,” Mr Mwine observed, noting that between May 2017 and August 2021 a number of clauses, among which require fulfilment of the country’s strategic reserves requirement, have continuously been breached and the consortium rewarded with deletions of clauses that offer very little legroom for the country to fall back on in the event of a crisis.
The Parliamentary Trade, Tourism and Industry Committee recommendation that the joint venture agreement between UNOC and the consortium be terminated and instead, necessary financial resources availed to UNOC, to procure fuel for the reserves, as well as develop necessary water transport infrastructure on Lake Victoria, which would save transport companies Shs30 per litre using water transport as opposed to road transport.
UNOC is currently undertaking construction of the Kampala Storage Terminal expected to keep up to 320 million litres of refined petroleum products.
These products will be received as imports and later from the planned refinery in Hoima.