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What next as Uganda deals with crippling fuel shortage?
Motorists at Shell Petrol Station in Mengo, Kampala on January 19. Fuel prices have been increasing since the beginning of the year Photo / File
What you need to know:
- Fuel prices globally have risen through the roof but developed countries have unleashed their fuel reserves in a bid to stymie the crisis while African countries are struggling with no fallback position, writes Derrick Kiyonga.
Uganda Bureau of Statistics latest data set showed the scale of the fuel crisis in Uganda. Diesel prices, the figures showed, shot up by an eye-watering 54 percent. Petrol, whose pump prices are just slightly cheaper than diesel, has also recently had a reputation of being costly.
While fuel prices across the globe have risen steeply over the past few months, it seems African countries have been disproportionately affected due to a number of reasons. A supply chain that has been knocked sideways by both the pandemic and Russia-Ukraine war has further distorted things.
In an effort to stem high fuel costs, US president, Joe Biden, ordered the release of America’s oil reserve of up to 180 million barrels of oil over the next six months. African countries do not have this luxury because they have no fuel in stock.
Uganda for instance has a 30 million-litre fuel storage facility in Jinja. The depot holds reserves equivalent to 4.6 days of fuel stocks, going by the daily consumption of 6.5 million litres.
In practice, the reserve—which is under the State-owned Uganda National Oil Company (UNOC)—has remained largely empty.
In 2017, UNOC moved to rehabilitate the reserves when it entered into a joint venture agreement with a number of companies such as One Petroleum (U) and Mbaraki Bulk Terminal.
Their role would be management and operating of the reserves and storage terminals after winning a bidding process.
The details were that—under the joint venture—the consortium would stock the reserves to full capacity by July 31, 2017, with an equivalent of 30 million litres. It would also ensure that the facility, at all times, has not less than 40 percent of the storage capacity.
The consortium, according to the agreement, had been anticipated to design and develop a lake transport system at the Jinja Storage Terminal to transport petroleum products over Lake Victoria. The funds were to come from its own pockets, the document further stated.
Failed attempt
This year, having poked holes in the agreement, the parliamentary Trade, Tourism and Industry committee appeared to upend the entire venture. In fact, it recommended that the joint venture agreement between UNOC and the consortium be terminated. Instead, the recommendation was that essential financial resources be availed to UNOC to acquire fuel for the reserves as well as develop necessary water transport infrastructure on Lake Victoria.
It was estimated that this undertaking would save transport companies Shs30 per litre using water transport as opposed to road transport.
Putting in place strategic oil reserves in Uganda was—interestingly—the brainchild of President Idi Amin. During the nine years of his presidency—most remembered for the arbitrariness of the authorities—Amin constructed four national fuel reserves depots in Nakasongola, Kasese, Gulu, and Jinja. Of the quadruple, only the Jinja depot became operational with a capacity of 30 million litres (in equal proportions) of diesel, petrol, and kerosene combined.
The idea that the ruling National Resistance Movement (NRM) failed to rehabilitate the Jinja depots has always provided the Opposition fodder when there’s a fuel crisis.
“President Idi Amin built oil reserve tanks in Jinja and had fuel reserved! This was nearly 50 years ago. The last we heard of these (Amin) reserve tanks was that Mr Museveni’s junta had rented them to some private people,” opposition doyen Dr Kizza Besigye told the media last month.
African picture
South Africa, Africa’s second-largest economy, has what is called the Strategic Fuel Fund (SFF), which by law must hold adequate oil reserves to last the country up to 21 days. It now also has 10 million barrels of crude oil in its strategic fuel reserve terminal.
In March, following the global surge in fuel prices the South African government suggested that using the country’s reserves would allow it to reduce the general fuel levy (GFL) included in the basic fuel price by R1.50/litre for the period between April 6 to May 31, 2022. A wide-ranging number of involvements, the South African government said, will also be considered once the two-month period lapses, including a review of the basic fuel price.
Yet over the past few years, South Africa’s refining capacity has steadily been diminishing as the ageing local refineries have stopped operations one after the other on the back of substantial worldwide and domestic shifts in policy, supply constraints, rising production costs and the gradually unfavourable economics of fossil fuel dependence in a world headed for greener energy pastures.
Kenya, East Africa’s largest economy, has fuel reserves that contain roughly 69 million litres of petrol and 94 million litres of diesel.
Strategic reserves
Though strategic oil reserves have been cited as a solution in the case of fuel crises that normally befall landlocked countries like Uganda, experts beg to differ.
“Oil reserves are supposed to be stopgap measures. Now if you look at the prices they don’t look like they are going to come down quickly even if you had fuel reserves,” Mr Denis Kusaasira, an oil expert and managing partner at ABMAK advocates, said, adding that they cane help you in times of “fuel shortages” but not “price increments.”
In an email, UNOC remained defiant when Sunday Monitor put it to task over the non-existent strategic reserves.
“It is important to have strategic reserves, but most countries store these in crude form, which requires refining capacity. Storing refined products creates inefficiencies,” Ms Angella Ambaho, UNOC communications officer, said, adding, large stocks of petroleum products are being brought in “that UNOC will trade, improve the logistical lines by focusing on the use of Lake Victoria.”
She added that plans to “build an additional government storage terminal in Namwabula, Mpigi, use of the [Central] Corridor [via Dar es Salaam) and ensuring direct supplies to the Ugandan market” are in high gear.
Mr Kusaasira reasons that the Russia-Ukraine war is responsible for Africa’s current travails.
“We are affected because there is a gap somewhere that our suppliers are trying to cover and probably those markets are nearer to those suppliers compared to us,” Mr Kusaasira said of the Middle East moving to address the supply chain Russia has created.
