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The rising fuel price puzzle that is difficult to explain

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The sight of rising fuel prices to nearly post-Covid-19 levels last week came on the back of a promise by government a reduction in the cost of fuel. Photo / Edgar R Batte 

You must have noticed a dramatic increase in fuel prices by the two majors – Shell and TotalEnergies – in the week ending January 10.

Of course, it was easily noticeable after a band of reductions in the three months to December 2024 that had driven pump prices to under Shs5,000 per litre of petrol for the first time in over four years.

Petrol prices had fallen to a market average of Shs4,860 after an agonizing volatility, in which the cost at some point had averaged Shs7,500 due to Covid-19 and Russia-Ukraine conflict-related disruptions.

Therefore, the sight of rising prices again – especially coming at a time when government had made several assurances – was nauseating and disturbing, to say the least.

In July, government assumed sole responsibility of importing petroleum products.

The argument had been that oil marketing companies – whom President Museveni had called middlemen and exploiters – were exploiting consumers through a well-designed cartel that exaggerated prices for profit.

Oil marketing companies, despite several threats, had remained defiant, insisting that prices were determined by factors beyond their control.

Indeed, prices never reduced and for a long time, even after several fundamentals had relaxed, remained high.

They had stagnated at an average of Shs5,550 for almost two years, having reduced post-Covid-19. 

Thus, when government pushed to implement the enacted Petroleum Supply (Amendment) Act, 2023, which empowered Uganda National Oil Company (UNOC) as the sole importer, oil marketing companies resisted.

But last mile-consumers – seemingly tired of the agony - silently sided with government, notwithstanding fears that have previously characterised government projects.

The new measure had also been necessitated by a shift in policy, in which Kenya had moved from the Open Tender System to Government-Government, a process deemed lengthy with numerous stakeholders whose profit margins could impact pump prices. 

Ms Nankabirwa celebrates the arrival of Uganda's maiden fuel shipment last year. In July, government took over the sole responsibility of importing petroleum products with a promise of a substantial reduction in prices. Photo / File   

Thus, the maiden shipment, although impacted by the pulling and shoving between the governments of Kenya and Uganda, was greeted with excitement given the promise of lower pump prices that UNOC and the Ministry of Energy had principally used to exit oil marketing companies from the fuel import market.

The impact was not immediate, but would eventually start to be visible by August when pump prices began dropping, before falling further to under Shs5,000 in December 2024.

Prices for many small local oil marketing companies had declined earlier but remained high for some majors with government indicating that some of them had stocked fuel before the UNOC takeover. 

In fact, in September, Energy State Minister Sidronius Okaasai Opolot said that whereas there was still a variance in pump prices across different filling stations, prices were expected to reduce to almost similar margins by December 2024.

“Give it three months. The impact will be realised across the board. Maybe there will be a small variance in prices because of brand and operational costs but it won't be as big as it has been,” he said. 

Indeed by the end of November 2024, the drop had been achieved, with a promise of a further reduction.

In fact, at the end of December when transporters hiked prices for upcountry journeys, amid falling pump prices, Energy Minister Ruth Nankabirwa was distraught, saying: “I have made so many trips to Kenya to change the system. It's very disheartening to see passengers getting duped. They [transporters] have no justification to increase prices, yet pump prices are going down.” 

However, before the ink could dry, pump prices started to rise in January and within days – Shell and TotalEnergies – had increased by almost Shs200, while slight, but incremental revisions, were recorded among small oil marketing companies.

However, they have since relaxed to under Shs5,000 - save for a few filling stations - but remain above the December average of Shs4,860 per litre of petrol.

In the week ending January 10, the cost of petrol – as measured by the two majors – had increased to an average of Shs5,040, while diesel, which in December had fallen to an average of Shs4,770, had risen to Shs4,990, particularly in Kampala, but relatively higher in upcountry stations that have to factor in transport costs in final end-user price.

Movements in fuel prices are mainly determined by international oil prices, performance of the shilling against the dollar and inflation.

Two out of the three fundamentals have largely remained stable, save for international crude prices, which in this case is cancelled out because UNOC – the sole importer and supplier – says has not changed retail prices in over four months now.

The shilling has largely remained stable against the dollar, depreciating slightly from an average of Shs3,638 in December to Shs3,692.86 as of yesterday. On the other hand, inflation, which closed 2024 at 3.3 percent, remained below Bank of Uganda target of 5 percent.

Only crude oil has edged upwards by 29 percent, closing yesterday at $80.21 per barrel on the international market. 

However, experts say the changes above, are largely insignificant to warrant an immediate increase in local pump prices. 

“I do not see any fundamental reason for a price increase,” Peter Ochieng, a regional fuel trade expert, told Monitor on Tuesday, noting that international crude prices have been stable and the shilling to the dollar has been in the same range over the last three months.

However, he noted that supply fears could have impacted international prices that shot up in the last one week, triggered by last-minute sanctions on Russia by the US.

Tony Otoa says UNOC has not changed its pricing structure to oil marketing companies in almost four months. Photo / File  

UNOC chief corporate affairs officer Tony Otoa said they had not changed their pricing structure since they took over the responsibility of importing petroleum products. 

“Nothing has changed on our side in terms of pricing to oil marketing companies. On our end, it is still the same terms from day one,” he said.

However, Anthony Ogalo, the general manager of Sustainable Energy and Petroleum Association of Uganda, an umbrella association of oil marketing companies, disputes Otoa’s claims, insisting that oil marketing companies have responded to movements in the international market which “is a normal trend in commodity marketing”. 

“They (UNOC) can’t say that the same price they bought fuel last month is the same as they bought it this month. That is the response they normally give. What do they mean? Did they buy at the same price they bought last month? Why would someone just increase the price just like that?” he wondered in respense to Otoa’s claims that “nothing has changed on our side in terms of pricing”. 

The Ministry of Energy, which has been at the forefront of pushing for a reduction in pump prices, yesterday – through Patricia Litho, the assistant commissioner for communication and information management – said “we are still observing this quarter and making an analysis”, without giving details.  

Prices across East Africa

Uganda remains one of the countries with the highest fuel prices across East Africa.

Uganda, whose petrol and diesel retails at an average of $1.371 (Shs4,983.7) and $1.289 (Shs4,683.6) per litre, according to GlobalPetrolPrices.com, which tracks prices of fuel in about 150 countries, has the highest prices in East Africa.

Uganda is only rivalled by Kenya, Burundi, and Tanzania, whose petrol retails at $1.355 (Shs4,925.6), $1.354 (Shs4,921) and $1.241 (Shs4,511.2), respectively.

DR Congo and Rwanda, which retail petrol at $1.052 (3,824.1) and $1.147 (Shs4,169), respectively, have the lowest fuel prices across East Africa.

However, across East Africa, it is only Uganda that doesn’t subsidise or control fuel prices. 

Across Africa, Libya and Angola have the lowest petrol prices of $0.031 (Shs1,12.6) and $0.329 (Shs1,195.9), respectively, while the Central African Republic has the costliest petrol, retailing at an average of $1.760 (Shs6,397) per litre, according to  GlobalPetrolPrices.com.

Additional reporting by Dorothy Nakaweesi