The passing of the Petroleum Supply (Amendment) Bill 2023 has stirred significant upheaval in Uganda’s oil sector, as the state-owned Uganda National Oil Company (Unoc) stands poised to become the sole importer and supplier of fuel products in collaboration with Swiss-based Dutch energy giant Vitol.
This move toward monopolization has triggered concerns among oil marketing firms (OMCs), both new entrants and established players, regarding the competitive landscape and potential exclusivity in the industry. Mahathi Infra Uganda Ltd, a $270 million oil logistics investment, is among those questioning their role under the new arrangement.
Mike Mukula, Chairman of Mahathi Infra, expressed uncertainty, stating, “It’s not yet clear how we fit into this new setup.” The company operates fuel storage facilities near Kampala and utilizes barges to transport petroleum products from Kisumu Port to its reserves in Kawuku, raising concerns over its future within the monopolized market.
The legislation mandates all OMCs to exclusively purchase from Unoc, raising objections over the emergence of a monopoly and the lack of a competitive framework. Legislator Nathan Nandala Mafabi voiced apprehension about the Vitol-Unoc partnership favoring certain players, referencing Vitol’s connection with major dealer Vivo Energy.
Critics highlight the existing three-layered system involving overseas refineries, Kenyan middlemen, and local OMCs, resulting in profit margins being factored into the final pump prices. The bill’s proponents argue that direct oil procurement from Gulf state refineries would mitigate price volatility and supply uncertainties currently influenced by Kenyan intermediaries.
Under the Vitol-Unoc deal, Vitol will finance petroleum product supply up to Kenyan delivery points, facilitating Unoc’s payment to oil marketing companies within Uganda, aiming for a more controlled and predictable fuel supply chain.
However, dissenters argue that this arrangement could hike fuel prices due to financial interests and interest rates associated with global funding by Vitol. Additionally, concerns arise over foreign companies dominating Uganda’s market share, further diminishing local participation.
Questions also loom over Unoc’s reserve capacity in Jinja, with observations suggesting a geographical mismatch between the storage facilities’ location and fuel consumption centers, primarily within a 65km radius of Kampala.
As the legislation takes effect, industry observers note preemptive maneuvering by entities vying for logistics contracts to deliver fuel to OMCs, indicating Unoc’s intention to engage private transporters for fuel imports.
While Unoc asserts readiness to leverage both Kenyan and Tanzanian routes, logistical considerations and infrastructure optimization discussions remain ongoing.
The shift in Uganda’s oil supply dynamics comes amidst a standoff with Kenya, marking a departure from Kenyan middlemen. Tanzania emerges as a potential alternative, although logistical concerns linger.
As the sector navigates these transformations, stakeholders await further developments and potential implications on market competitiveness and fuel pricing.
