Govt seeks fuel import monopoly

The government is planning to take over importation of petroleum products into the country in a move officials envisage will stabilise stocks and prices while opening a new revenue stream.

Energy minister Ruth Nankabirwa has notified Uganda National Oil Company (Unoc) - a manager of the country’s commercial interests in petroleum business – that the proposed shift is predicated on a February 27 presidential directive.

Our investigations reveal that Unoc officials subsequently in April held preliminary discussions with counterparts at Vitol, a Swiss-based Dutch “global energy and commodities” company, to kick the plan to life.

Ugandan bureaucrats are prospecting to contract Vitol as a sole supplier of petroleum and related products to the country through Unoc, crowding out more than 40 oil marketing firms currently involved in importation.

Highly-placed sources said President Museveni in a March 24 meeting with senior officials of Energy ministry and Unoc provided a guidance that informed the proposal to potentially sign up Vitol as partner.

Unoc Chief Executive Officer, Ms Proscovia Nabbanja, appraised her Board of the developments on March 30, telling the directors that the intended arrangement is a result of a presidential directive.

Ms Nabbanja noted in a brief to Board members that the President, in his directive to minister Nankabirwa, emphasised that one of the reasons for establishing Unoc was to help the government improve its “products’ stock-holding levels within the country and subsequently contribute to the stabilisation of consumer and retail fuel prices”.

“The government must deliberately support, facilitate Unoc to continue developing the petroleum products trading business with its existing strategic supply partners/refiners from whom it can tap financial and technical capabilities alongside advancing opportunities for knowledge and skill transfer to its staff,” she wrote, quoting her line minister’s version of the presidential directive.

The President reportedly also demanded that the government must through the Ministry of Energy strengthen its role in the import and supply of petroleum products by “mandating Unoc to be the exclusive importer of petroleum products into the country”.

Minister Nankabirwa yesterday confirmed the developments, but declined to provide details.

“This is business I cannot discuss in [news]papers now,” she said, adding, “We are still in consultation and, therefore, I cannot discuss the matter in papers at the moment.”

Like the minister, the ministry’s permanent secretary, Ms Irene Batebe, would not offer specifics.

“The issues are still under discussion and the ministry will make a public pronouncement once the discussions are done,” she noted, “For now what I can tell you is that the ministry is going ahead to support all private players to import fuel and, thus, I cannot comment about that issue.”

Industry players yesterday warned that the plan to ring-fence oil importation to a government company undermines the country’s economic liberalisation policy and is fraught with dangers of stock-out in the event of supplier disruption.

Mr Anthony Ogalo, the chairperson of the Sustainable Energies and Petroleum Association, which brings together all private oil importers, warned the government to go slow on this plan.

“In case of any disruption in the supply chain, we shall have problems of fuel scarcity due to the nature of imports, because we are not sure how sustainable this will be because we, as private players, are ready so long fuel reaches us on time and at a good price,” he said.

He argued that a takeover of fuel imports by the government is no guarantee that prices will reduce because charges at the pump are determined by the market forces of demand and supply.

It remained unclear what would happen to subsisting contractual purchase obligations between companies importing oil in Uganda and their suppliers if the government takes exclusive import rights.

Unoc is the spearhead in the arrangement and its officials yesterday declined to discuss the matter, with Spokesman Herbert Ssempogo returning a “no comment” to our email inquiries sent on his request.

Similarly, Rev Frank Tukwasibwe, the commissioner in-charge of Petroleum Supplies in the Energy ministry, declined to be drawn into discussing the proposal which has become a hot-button issue between the government and oil companies.

“The person who leaked the information to you has [the] details, let him give it to you,” Rev Tukwasibwe said and hung up.

According to the blueprint, the government as a sole importer will in turn sell fuel to current companies with which it has started a delicate offtake agreement negotiation to lock them in as first buyers.

Details in the briefing by Ms Nabbanja to Board members indicate that President Museveni has already asked Energy ministry to make relevant policy changes to allow Unoc to scale up its petroleum business and wean it off Treasury allocation.

The President, the chief executive noted, reiterated that ring-fencing oil imports for Unoc will provide financial benefit to the country by opening up a new revenue stream.

“These new revenues will reduce Unoc’s reliance on the national Treasury for funding for such crucial projects like the Kampala Storage Terminal, East African Crude Oil Pipeline (EACOP), and the proposed oil refinery,” she wrote, quoting Mr Museveni.

We were unable to speak to State House by press time to corroborate the accounts detailed in the official correspondence.

Uganda’s long-running ambition to build a 60,000 barrels-per-day (bpd) oil refinery in Hoima’s Buseruka Sub-county suffered a setback when a Project Framework Agreement (PFA) that the government signed with the Albertine Graben Energy Consortium (AGEC), a special purpose vehicle of American and Italian firms, expired last Friday with no money in sight.

Background

Bureaucrats in Kampala argue that adjustments to how and who gets oil into the country are necessary to respond to Kenya’s March 13 adoption of a new supply system for their petroleum products, which they said ends Open Tender System (OTS) under which Ugandan Oil Marketing Companies (OMCs) transacted business.

Nairobi made the changes without consultations with its inland neighbour, and Ms Nabbanja noted that this caused confusion, prompting affected Uganda oil firms to seek the intervention of the government which has on the cards an option of sourcing related supplies through Tanzania, the southern neighbour.

It has emerged that the plan to insert Unoc as a central petroleum importer conflicts with an ongoing engagements with the Islamic Trade Finance Corporation (ITFC) and the Abu Dhabi National Oil Company (ADNOC), which officials now propose to abort.

Information available to this newspaper shows that the government and Vitol were to discuss Head of Terms (HoTs), a pre-sale agreement, for the intended commercial partnership back in April.

We were unable to establish whether the discussion happened or the outcome. Sources said the government considered the document “critical” to guarantee favourable oil pricing for the last-mile consumer and profits for Unoc.

“It is important that we secure demand commitments from the key market players such as Vivo Energy and TotalEnergies. A meeting was held with Vivo in pursuit of the same and there is commitment to support Unoc in this initiative. The Ministry [of Energy] has also pledged its support to Unoc to implement this directive …,” CEO Nabbanja noted.

Industry players to private players, however, warned that fuel import monopoly will imperil supply security to Uganda where monthly demand grosses 330 million litres.

They also said a supply disruption and or dispute with a sole importer --- in this case Unoc which has neither experience not logistical resources outlay --- could leave the country without stock, plunging it into travel and economic chaos.

Industry players see danger ahead

The players recommended that government must at least run a two or three-supplier model as opposed to having a single supplier.

Suppliers must pass a pre-determined criteria to ensure they can actually perform, the sale of the product should only be incoterms Free Carrier (requirement for seller to deliver to buyer at pre-agreed destination) when the product is in Unoc and or Ugandan terminals.

To ensure security of supply to Uganda and the product is risk managed and financed by suppliers, Unoc must give all suppliers throughput agreements (product quantum specifications per period through a facility) in their terminals at fixed and equal rates, to allow suppliers to finance and hedge stocks, and

Unoc [petroleum and petroleum product] volumes must be in line with the size of Unoc tanks/infrastructure available in place to avoid a scenario of Unoc overcommitting itself and unable to accept the committedvolumes.

Extracted from an official document titled, Analysis of the current fuel term sheet for VITOL and the danger to Unoc, importantly, the government of Uganda

[email protected]