Why fuel crisis hit Uganda
Apr 09, 2010
UGANDA will continue to suffer fuel shortage each time the supply chain is interrupted because the energy ministry has failed to refurbish the oil reserves. The strategic oil reserves in Jinja, built in the 1970s with a capacity of 20 million litres of diesel and 10 million litres of petrol, are not
By Ibrahim Kasita
UGANDA will continue to suffer fuel shortage each time the supply chain is interrupted because the energy ministry has failed to refurbish the oil reserves.
The strategic oil reserves in Jinja, built in the 1970s with a capacity of 20 million litres of diesel and 10 million litres of petrol, are not functioning.
In 2007, when Uganda suffered a severe fuel crisis due the post-election violence in Kenya, there was a public outcry and Parliament ordered the energy ministry to repossess the reserves and restock them. The cost at the time was estimated at sh31b.
The rationale was that the fuel companies in Uganda usually stock enough fuel for 10 days and in case of interrupted supply they run out of stock in just over one week.
However, experts in the energy ministry have told Saturday Vision that no work has started on the reserves because there are still “technical issues†to be resolved.
According to sources in the ministry, the money has never been availed.
Refurbishing the reserves was one way of solving the fuel shortages. Extending the oil pipeline from Eldoret to Kampala was another one.
Uganda and Kenya in 2005 entered into a memorandum of understanding to extend the Kampala-Eldoret oil pipline. A long but controversial procurement process was carried out and Tamoil Oil, a Libyan firm, won the tender.
The energy ministry wanted the Jinja reserves project to be integrated into the Kampala-Eldoret pipeline project. Tamoil Oil would manage the project.
But wrangles between the energy ministry and Tamoil have stalled the pipeline project as well.
The disagreements are about the technical design and the cost.
The change of the design has pushed the project cost up by three times, to $250m from $80m.
Uganda wants the pipeline to take refined oil products both ways.
This is because it intends to build an oil refinery in western Uganda.
Asked about the delays, the permanent secretary at the energy ministry declined to comment.
“We are still discussing those issues. I don’t want to pre-empt them because I am preparing a brief note for Cabinet,†said Fred Kabagambe-Kaliisa.
Current shortages
The shortages Uganda experienced in the last few weeks is part of a global shortage of petroleum. Refineries in the Middle East are unwilling to sell large quantities of oil because of low oil prices.
They are holding on to their oil and waiting for prices to go up.
Uganda’s problems are compounded by the difficulties in transporting petroleum from the Middle East to Kampala. The increased incidences of piracy on the Indian Ocean have raised transport costs and caused delays.
The crude oil transported by ship from the Middle East is then refined at Mombasa.
The Mombasa refinery tends to give priority to diesel rather than petrol because of bigger demand and higher profit margins.
From Mombasa the refined petroleum products are pumped through a pipeline to Nairobi and Eldoret. Fuel tankers destined for Uganda then fetch the oil from Eldoret.
This long chain of transportation makes Uganda vulnerable to any problems arising along the way, and immediately results into shortages and price hikes.
It is not surprising, therefore, that, whereas global oil prices have gone down, the pump prices in Uganda have continued to go up.
Oil companies have warned that even when the shortages end, fuel prices will not go down quickly because they have to recover the cost of transport.
Kalisa argues that in a liberalised economy, the Government cannot intervene to fix the prices of petroleum products.
“We cannot interfere with the market because this is a free market economy. However, we have strict regulations that ensure that the oil companies stock all kinds of petroleum products for at least 10 days to cushion the inadequacy,†he said.
“We have been monitoring them and they have adhered to this condition. By the time you realize that there is a shortage, just know that it started about 10 days ago.â€
Another factor that has influenced the prices is the exchange rate. The Ugandan shilling has depreciated against the dollar in the last few weeks, driving up the transport cost and insurance charges.
UGANDA will continue to suffer fuel shortage each time the supply chain is interrupted because the energy ministry has failed to refurbish the oil reserves.
The strategic oil reserves in Jinja, built in the 1970s with a capacity of 20 million litres of diesel and 10 million litres of petrol, are not functioning.
In 2007, when Uganda suffered a severe fuel crisis due the post-election violence in Kenya, there was a public outcry and Parliament ordered the energy ministry to repossess the reserves and restock them. The cost at the time was estimated at sh31b.
The rationale was that the fuel companies in Uganda usually stock enough fuel for 10 days and in case of interrupted supply they run out of stock in just over one week.
However, experts in the energy ministry have told Saturday Vision that no work has started on the reserves because there are still “technical issues†to be resolved.
According to sources in the ministry, the money has never been availed.
Refurbishing the reserves was one way of solving the fuel shortages. Extending the oil pipeline from Eldoret to Kampala was another one.
Uganda and Kenya in 2005 entered into a memorandum of understanding to extend the Kampala-Eldoret oil pipline. A long but controversial procurement process was carried out and Tamoil Oil, a Libyan firm, won the tender.
The energy ministry wanted the Jinja reserves project to be integrated into the Kampala-Eldoret pipeline project. Tamoil Oil would manage the project.
But wrangles between the energy ministry and Tamoil have stalled the pipeline project as well.
The disagreements are about the technical design and the cost.
The change of the design has pushed the project cost up by three times, to $250m from $80m.
Uganda wants the pipeline to take refined oil products both ways.
This is because it intends to build an oil refinery in western Uganda.
Asked about the delays, the permanent secretary at the energy ministry declined to comment.
“We are still discussing those issues. I don’t want to pre-empt them because I am preparing a brief note for Cabinet,†said Fred Kabagambe-Kaliisa.
Current shortages
The shortages Uganda experienced in the last few weeks is part of a global shortage of petroleum. Refineries in the Middle East are unwilling to sell large quantities of oil because of low oil prices.
They are holding on to their oil and waiting for prices to go up.
Uganda’s problems are compounded by the difficulties in transporting petroleum from the Middle East to Kampala. The increased incidences of piracy on the Indian Ocean have raised transport costs and caused delays.
The crude oil transported by ship from the Middle East is then refined at Mombasa.
The Mombasa refinery tends to give priority to diesel rather than petrol because of bigger demand and higher profit margins.
From Mombasa the refined petroleum products are pumped through a pipeline to Nairobi and Eldoret. Fuel tankers destined for Uganda then fetch the oil from Eldoret.
This long chain of transportation makes Uganda vulnerable to any problems arising along the way, and immediately results into shortages and price hikes.
It is not surprising, therefore, that, whereas global oil prices have gone down, the pump prices in Uganda have continued to go up.
Oil companies have warned that even when the shortages end, fuel prices will not go down quickly because they have to recover the cost of transport.
Kalisa argues that in a liberalised economy, the Government cannot intervene to fix the prices of petroleum products.
“We cannot interfere with the market because this is a free market economy. However, we have strict regulations that ensure that the oil companies stock all kinds of petroleum products for at least 10 days to cushion the inadequacy,†he said.
“We have been monitoring them and they have adhered to this condition. By the time you realize that there is a shortage, just know that it started about 10 days ago.â€
Another factor that has influenced the prices is the exchange rate. The Ugandan shilling has depreciated against the dollar in the last few weeks, driving up the transport cost and insurance charges.