Ugandans should brace for higher fuel prices in 2024

Between December 2021 and December 2023, average petrol prices increased by nearly 21 percent from Shs 4,590 to Shs5,561, while diesel prices rose by about 18 percent from Shs4,230 to Shs4,992.

The escalating fuel pump prices have led to public outcry for government policy action to address the issue. 

Several factors responsible have been highlighted: rising international crude oil prices, excessive marketing and distribution costs by fuel distributors, unfavourable fuel taxes, and the escalation of Russia-Ukraine conflicts and the war in the Middle East. 

Other sources have attributed rising local fuel prices to global economic recovery from Covid-19, leading to higher demand for fuel. In response, the government, in November 2023, amended the Petroleum Supply Amendment Act and gave Uganda National Oil Company (UNOC) powers to monopolise the supply of all petroleum products in Uganda. In doing so, the government aimed to stabilise the domestic supply of petroleum products, improve the country’s petroleum stock holding levels and contribute to the competitiveness of retail pump prices.

Despite passing a law to monopolise fuel supply in Uganda, the final pump price, which Ugandan consumers are likely to pay in 2024, will be determined by factors beyond the amendments within the Act, as discussed below. First, examining the fuel supply side reveals that the final pump price 2024 will probably depend on how long the Organisation of the Petroleum Exporting Countries (OPEC) shall sustain their voluntary oil output cuts. 

According to Reuters, a news wire, OPEC+ oil producers agreed in November 2023 to reduce oil production voluntarily by 2.2 million barrels per day for early 2024 to support prices. This decision caused global oil prices to rise by two percent. As such, sustained oil production cuts by these countries could mean higher prices in 2024.

Second, disruptions in fuel shipping routes, catalysed by the Israeli conflict in the Gaza Strip. An escalation of the Israeli aggression in Gaza has led to attacks on ships in the Red Sea by militants from Yemen. Accordingly, shipping vessels sail a much longer and more expensive route around South Africa. 

Shipping rates are likely to increase with a continued re-routing of shipping vessels. A rapid escalation in shipping costs will likely result in a projected increase of 2.3 percent in core inflation around the Euro Area. Therefore, prolonged re-routing of shipping vessels from the Red Sea will likely have a greater impact on general consumer prices, fuel inclusive. 

Finally, the delayed issuing of a licence by Kenyan authorities to the Uganda National Oil Company (Unoc) caused trade-related barriers within the East African Community. Regarding this, Unoc must provide evidence of previous marketing of 6.6 million litres of super petrol, diesel, and kerosene; have an operational petrol depot; and have at least five retail petrol stations in place. Fulfilling all these requirements may not be possible in the short run and will likely result in supply shortages in Uganda, pushing final pump prices up.

This will have wider implications to the economy at different levels. At the macro level it will increase the cost of doing business as they face higher input costs. Fuel energy is a critical intermediate input in the production of goods and services, and thus, any crisis in its prices culminates in far-reaching adverse effects on the economy. 

Second, increases in fuel pump prices also undermine poverty reduction efforts because they are transmitted to households through the impact on the prices of all other goods which use petrol and diesel, among others, as intermediate inputs. 

For example, the most affected commodity is food, on which the poor spend disproportionately a higher share of their total household expenditures, more than 40 percent, according to the Uganda Bureau of Statistics.

Apart from food, the value of other essential commodities (eg sugar, salt, and medicine) is also adversely affected by the fuel price crisis.  

Therefore, to ensure a smoother and faster course of economic recovery, it is important that any challenges likely to lead to high fuel price are resolved immediately. In this regard, Uganda needs to settle its standing fuel importation disputes with Kenya to

Mr Sserunjogi, is a research fellow at Economic Policy Research Centre, Makerere University