Mukula firm gets sole rights to move oil on Lake Victoria

Government has been cast in the spotlight for ring-fencing transportation of petroleum products into Uganda via the waters of Lake Victoria.

A July 31, 2015 agreement signed by the Ministry of Energy and Mineral Development and Mahathi Infra Uganda Ltd grants exclusive rights to the firm to transport petroleum products on the waters of Lake Victoria for at least 10 years.
Mahathi Infra Uganda Ltd is a local subsidiary of the India-based Mahathi Infra Services Private Ltd.

“(Government) further acknowledges that for the implementation of the project and its commercial viability, it is essential and critical that exclusive rights be granted as provided hereunder (i) Exclusivity to MISPL (Mahathi Infra Services Private Limited) for five years from the effective date (ii) Exclusivity for a further five years upon the renewal of petroleum operational Licence,” the agreement reads in part.
Effective date refers to the date of obtaining the requisite petroleum operating licence in accordance with the provisions of the Petroleum Supply Act, 2003.

Mr Solomon Muyita, the principal communications officer in the Ministry of Energy, told Sunday Monitor on Friday that the agreement does not necessary lock out other people who might be interested.
“The exclusivity is not absolute that no other player can really come in,” Mr Muyita said.
But a further look at the agreement indicates that other players that might be interested in transporting petroleum products on the lake will have to seek permission from Mahathi Infra Services Ltd.

“Over the exclusivity period, no other party other than MISPL shall be permitted to introduce barges or tankers for the transporting petroleum products on Lake Victoria to and from Uganda for the above period without written consent from MISPL,” states the agreement.

Sector players cry foul
However, an actor in the water transport sector, who requested not to be named, told Sunday Monitor that the concessions that government made to Mahathi, which he described as “unfavourable” to other sector players, could have been given due to influence-peddling on the part of the Vice Chairperson of the NRM in-charge of eastern Uganda, Mr Mike Mukula.
Documents from the Uganda Registration Services Bureau (URSB) indicate that Mahathi Infra Uganda was incorporated in Uganda on May 18, 2015. Copies of the Memorandum and Articles of Association show that the company had Fortune Energy Ltd, Mr Hadson Mboya, and Mahathi Infra Services Ltd as the three sponsors of the company.

Returns filed with URSB by Fortune Energy on December 31, 2020, indicate that the shareholders in Fortune Energy are Voice of Teso Ltd and Uganda Aviation Academy. The returns were filed by Mr George Michael Mukula and Mr Michael Mukula Junior.
That means that Mr Mukula as one of the shareholders in Fortune Energy Ltd is a shareholder in Mahathi Infra Services Uganda.

Mr Mukula acknowledged being a shareholder in Mahathi Infra Services Uganda, but denied accusations of influence peddling.
“That is absolute nonsense. My being a member of the NRM does not mean that I am peddling influence. No. I am only an investor in the country like any other person,” he said.
Mr Muyita defended the decision to grant Mahathi what he described as “exclusivity for a reasonable period,” saying it was based on the size of their investment.
“This player (Mahathi) said the investment is big. They had to put up a storage terminal and they have to bring in barges. Barges have to be bought, assembled, before they can start the work. So because it is a heavy investment, this player bargained for some period within which he can recoup his investment,” Mr Muyita said.

Mr Mukula defended Mahathi’s insistence on obtaining exclusivity saying it would not have been able to secure funding for a project which he says is expected to reduce by about 50 percent the cost of transportation of fuel to Uganda and reduce traffic congestion, the cost of road maintenance and pollution.
“You don’t put $270 million in a strategic investment, build four ships, build 14 tanks that give you 70 million litres of fuel that a country does not have and then you don’t get an exclusive arrangement to return your investment first,” Mr Mukula says.

“Who does that; would any bank finance you if you do not have exclusivity? Would any bank put there its money?” he asked.
Sunday Monitor has established that Legal Brains Trust of Uganda had by early Friday afternoon filed a suit in the Civil Division of the High Court of Uganda seeking orders to overturn the exclusivity clauses of the contract.

Copies of the court documents and supporting affidavits filed by Mr Anthony Jjumba of Legal Brains Trust seeks an order to have the agreement between Mahathi and the government nullified on grounds that it “violates or threatens to violate a bundle of fundamental rights protected under the Constitution and is thus illegal, null and void”.

Legal Brains Trust also seeks an order restraining the agents of Mahathi and those of government from implementing any provisions of the said agreement. But Mr Muyita says signing the agreement was the outcome of consultative process and that government is most likely to be ready for such an eventuality.
“There was a whole discussion within government on the matter of exclusivity and indeed other provisions. I believe that once any legal aspect props up the Attorney General will know what to do,” Mr Muyita told Sunday Monitor.

Precedence
This will not be the first time that the exclusivity or monopoly has come under legal challenge. Both the Constitutional Court and the East African Court of Justice have pronounced themselves on the matter of creation of monopolies. 

In August 25, 2020, Justice Fredrick Egonda Ntende while delivering judgment in the case of Spedag Interfreight Uganda, SDV Transami, Damco Logistics and Three ways Shipping Services vs the Attorney General and Great Lakes Ports Ltd, ruled that government did not have the power to enter into a contract that limited the petitioners’ fundamental rights under Article (40)(2) of the Constitution.

Article (40)(2) provides that “every person in Uganda has the right to practice his or her profession and to carry out any lawful occupation, trade or business”.

“I would, therefore, declare that the act of the respondents executing a contract which purported to vest monopoly rights over clearing, forwarding and handling services of all imports and exports to and from Uganda through the port of Mombasa and in (Great Lakes Ports Limited) is inconsistent with and in contravention of …the Constitution”, Justice Egonda Ntende ruled.

Similarly, the East African Court of Justice also ruled against Uganda in February 2016, when Mr Henry Kyarimpa challenged government decision to select Sino hydro and sign a Memorandum of Understanding (MoU) with it as the contractors for the Karuma Dam project on grounds that it violated procurement guidelines and infringed on the principles of the rule of law, good governance, accountability and democracy and were inconsistent with the Treaty for the establishment of the East African Community.
Mr Muyita, however, insists that the agreement also has provisions for cancelation of the exclusivity granted to Mahathi.

“Government may revoke the exclusivity granted to MISPL only when MISPL has committed any material breach which could not be cured by MISPL within a period of 90 calendar days from the date of recipt of notice of such default from government,” the clause reads.
But the clause is silent on the nature of breach that can lead to such a cancelation.

Museveni on railway, water transport
President Museveni has for several years been championing a shift from road to railway and water transport, saying they are not only much cheaper but will help reduce what Uganda’s expenditure on road maintenance.

‘‘Railway transport is cheaper than road transport. For example, the cost of transporting a 40-feet container of goods from Mombasa Port to Kampala is $3,600 (about Sh12.8m) compared to railway transportation, which is $1,800 (about Shs6.4m),” Mr Museveni said on October 25 last year during the commissioning of rehabilitation works on the Tororo-Gulu railway line and the construction of the Gulu logistics hub in Gulu City and Inland container depot.

Mr Museveni also said government is considering exploiting water transport on Lake Victoria between Kisumu in Kenya into Uganda ports of Kasensero-Bukakata that link to Rwanda and the DR Congo.

About the ship

On October 4, 2021, a gleeful Capt Mike Mukula tweeted the picture of a giant marine vessel he called ‘MT Kabaka Mutebi II.’
He wrote that it had been pushed into the waters of Lake Victoria, for the first time.  

Mukula added on the lake’s local name: Nalubaale.  In the same tweet – Mukula, who is the ruling National Resistance Movement (NRM) vice-chairperson eastern Uganda – explained how they have spent two years building this colossus of a motor tanker (MT), which he said measures 188 metres by 23 metres, and weighs more than 4 tonnes.  

“The ship upon being unveiled docked at the Port Jetty in Kawuku awaiting final calibration and bath metrics to Kisumu port, Kenya,” Mr Mukulu tweeted before revealing how Mr Charles Peter Mayiga, the Katikkiro  [premier] of Buganda, had toured the ship.