Prime
Pursue a win-win oil stockpile deal
MT Navig8 Matines docks at the new Kipevu Oil Terminal 2 at the port of Mombasa on July 3. Uganda National Oil Company is now the sole importer after the deal that eliminated Kenyan companies and promises consistent supply and moderate fuel prices. PHOTO/ BETTY NDAGIRE
What you need to know:
The issue: Oil deal
Our view: We therefore urge the government of Uganda to spare no effort in pursuing a win-win. Evidently, Kenyan interests cannot be wished away as this has been one of their cash cows
It is early days, but the government of Uganda’s decision to create a statutory monopoly (Uganda National Oil Company or Unoc) that includes an external broker (Vitol Bahrain) appears to be already splitting at the seams. The bold move around supply of all petroleum products to Uganda is intended to reduce pump prices in the country by stabilising supply whilst also creating a new revenue stream via Unoc’s commissioning fee.
The prognosis barely a week into the undertaking is that this increasingly looks like a misstep launched by innocence and good intentions. This is largely because the numbers just do not stack up. And we are talking about the 17,000 cubic metres of under-declared diesel that Kenyan authorities red-flagged last week.
There had always been doubt as to whether Vitol Bahrain’s premiums would match let alone eclipse those attributable to the open tender system/government-to-government (G-t-G) oil supply deal in Kenya. This past week, numbers from across the border showed how Uganda risks slipping easily in and out of trouble.
Stripped back to essentials, the numbers show that Uganda pays Vitol Bahrain $81.50 per tonne of super petrol vis-à-vis $90 per tonne under Kenya’s G-t-G oil supply deal with three Gulf oil majors. This, though, is only half the story. Look closer and the flaws of Uganda’s new fuel procurement system are glaring. Its logistics charges ($32.92 per tonne) are, by some distance, higher than what is incurred under Kenya’s G-t-G oil supply deal ($28.03 per tonne).
On a lighter, if no less economically devastating note, the new fuel procurement system looks strangely out of kilter with the integration gospel President Museveni has been preaching for decades. No less problematic for Uganda is the economies of scale advantage lost to a reboot that has the landlocked country going it alone. Disaggregating Uganda’s fuel volumes from Kenya’s—which conservative figures estimate to be fourfold more—was always bound to culminate in higher pump prices.
Computations by our sister publications in Kenya indicate that the unit cost of the sourced fuel will be $990.29 per tonne. This is $9.82 higher than what is mustered by Kenya’s G-t-G oil supply deal ($98.47 per tonne). While Unoc has every right to feel hard done by the Kenya Pipeline Company (KPC) slapping nearly a dozen more dollars than it traditionally charges, there is every indication that some sloppy homework was done.
Uganda has ended up spreading its risk too thin. And for that, the end user of petroleum products will, sadly, pay the price. The price of the aforesaid products is widely expected to increase.
It is perhaps no surprise that Kenya is prioritising its market now that Uganda disengaged from its G-t-G oil supply deal. Uganda should have seen this coming, and worked out how to absorb a body blow of that magnitude. We therefore urge the government of Uganda to spare no effort in pursuing a win-win. Evidently, Kenyan interests cannot be wished away as this has been one of their cash cows. A middle-of-the-road position that has all players walking away with a semblance of victory could still be worked out.
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