Vivo energy explains fuel pricing

By Samuel Sanya

The drop in pump prices of petrol and diesel by as much sh720 and sh1250 respectively around the country has excited Ugandans but many are skeptic al as to why the drop is less than the reduction in global crude oil prices.

Petrol prices are down to between sh3,230 to sh3,500 per litre around Kampala in April 2015 down from sh3,950 in November last year.

Diesel is selling at between sh2,400 to sh2,600 a litre down from sh3,650 in the same period.

On the other hand, international brent crude oil averaged $54 (sh162,000) per barrel in the first quarter of 2015 half of what it was in the same period last year.

One barrel of oil has 159 litres of fuel, which translates into sh1,019 per litre of crude.  

Hans Paulsen, the Vivo Energy Uganda managing director explains that while there is a correlation between the price of crude and processed fuel at the pump, there are additional costs along the distribution chain.
 
"There are costs at the refinery, transportation, the exchange rate and taxes. In case taxes on fuel are increased next financial year, the pump price will definitely go up," Paulsen told the first quarterly media briefing at the Serena Hotel.

Uganda consumes between 100 million to 110million litres of Petrol, Diesel, Kerosene, and Aviation fuel every month purchased by close to 70 licensed fuel dealers. Vivo energy which trades as Shell controls between 28% to 30% of the market share.

Paulsen explained that all fuel dealers purchase fuel through an Open Tender System from Nakuru, Eldoret or Kisumu in Kenya. The system is controlled by the energy ministries of both Uganda and Kenya.  

However, in order gain a competitive edge, Vivo energy has plants in Mbale and Kampala that add special chemicals to the standard fuel to create Shell FuelSave unleaded and Shell FuelSave Diesel.

While the bulk of its products are imported by pipeline and rail, Vivo transports its Shell V-power, shell gas, lubricants and Heavy Fuel Oil (HFO) by road from Mombasa.

"Only Shell imports V Power fuel. It has the highest Octane rating which gives it better conversion and better performance,
 
"Shell Uganda uses 250 trucks to import fuel to Uganda daily. The most ideal fuel transportation system is oil pipe line followed by rail but the railways still don't have enough train wagons," Paulsen said.
 
He noted that between 15% to 20% of fuel on the market or close to 20million litres is adulterated with kerosene, however, he pointed out that a tax on kerosene has made it expensive for fraudsters.
 
Joseph Adrapi, the Vivo energy quality manager said the company has an international level laboratory to certify fuel at their depots in addition to quality marshals at fill stations and random quality checks of fuel trucks.
 
Explaining the disparities in fuel prices by location, Edward Walugembe, the Vivo energy country sales manager noted that the Uganda market is completely deregulated and that demand and supply determine the price.
 
"There is an aspect of competitiveness in pricing; we look at trade dynamics in an area as well product differentiation,
 
"Eastern Uganda has cheaper fuel because it's nearer to the Kenyan boarder and our fuel depot in Mbale," Walugembe explained.