CITEZENS MANIFESTO: Voters want govt to address high fuel prices

CITIZENS MANIFESTO|ELECTION WATCH

Emmanuel Mugisha, a businessman and resident of Mbarara district, is a supplier of bananas, tomatoes, and cassava, among other food items.

He buys foodstuffs from smallholder farmers in western Uganda and supplies them to markets such as Nakawa and Nakasero in Kampala.

Mugisha told New Vision that his business relies so much on fuel prices. As such, he treats pump prices as a key factor in his business plan as it partly determines the final commodity selling price in the different markets.

"Fuel prices have been increasing, which is really affecting us as players in the transport business. I spend a lot on transportation of my goods, with little profit in return," Mugisha said.

He explained that he incurs higher costs because doing business in rural areas sometimes becomes costly due to the bad state of roads.

This is because service providers increase prices to cover the additional cost of fuel, vehicle maintenance and additional repairs, which are all heaped on players like him.

The challenges Mugisha is facing were reflected in an opinion poll conducted by Vision Group.

The survey carried out every after five years, aims at gauging opinions and perceptions of all potential voters towards socio-economic, political and cultural issues. The survey is always done ahead of a general election.

The study was conducted between March 13-24, covering 45 districts across the country, with a sample size of 5,987 respondents aged 18 years and above.

Findings 

The study revealed that there is a serious problem of high fuel prices and high costs of doing business in the country.

An overall ranking of the top issues that affect communities put high fuel prices eighth, with 5.7% of the total respondents highlighting this as a major hindrance.

Health (14.3%), poverty (10.1%), education (9.3%), road network and transport issues (8.9%), national security (7%), water and sanitation (5.8%), agriculture and food security (5.7%) topped the list as the most pressing concerns the voters want the presidential candidates to address.

Citizens in the western region have the biggest challenge of high fuel prices, according to the survey.

The findings indicate that up to 6.1% highlighted high fuel prices as a problem, compared to the central region's 5.7%. Uganda currently consumes about six million litres of petroleum products per day.

In the northern region, 5.4% of the respondents cited high fuel prices as a concern, while 5.5% said the same in the eastern region.

This means that several small businesses are having a hard time meeting both their supply chain and financial goals due to the rising cost of fuel.

Petroleum products (which include petrol, diesel, kerosene and aviation fuel) are the main imported products, with import expenditure rising from $1.02b in 2017 to $1.3b in 2018, according to data from the Uganda Bureau of Statistics (UBOS).

The import volume of petrol and diesel on average increased by 4%, jet fuel 6% and kerosene by 2% in 2018 compared to 2017.

In the last five years, fuel prices and sales by leading companies such as Vivo and Total have been on an upward trend. At least 2.1 billion litres of selected petroleum products were sold in 2018, reflecting a 5.9% increase compared to 2.0 billion litres of sales in 2017.

The highest product sold is diesel, accounting for 47.2%, followed by petrol at 43.2%, jet fuel at 6.7% and kerosene at 2.8%.

Concerns about energy and power

Tracing the price hikes 

In 2016, petrol was trading on average at sh3,258 per litre, diesel at sh2,576 and kerosene at sh2,384.

Crude oil, which is used in the production of petroleum products, at the time was trading at $40.15 a barrel.

Currently, fuel prices on average are trading in the range of sh3,750 to sh4,050 for petrol, sh3,650 to sh3,780 for diesel and sh3,250-3,280 for kerosene.

The prices may, however, vary depending on the fuel station. The international price for crude oil is currently about $40.64 per barrel.

Fuel marketing and distribution companies such as Vivo and Total have often explained that a decline in crude oil prices does not necessarily trigger an immediate fall in local pump prices.

This, they argue, could take at least three months for any impact to be felt at the pump.

Speaking to New Vision in an interview recently, Frank Tukwasibwe, the commissioner for the petroleum supply department at the Ministry of Energy and Mineral Development, said there are several determinants of fuel prices that dealers consider before setting a pump price.

"There are other variables that determine that price. You have the purchase price of the product on the international market, the transportation charges, handling charges and you have a tax and the exchange rate.

Most of the components I have listed are in dollars, except for the tax and the marking fees," Tukwasibwe explained.

"Those components will have a multiplier effect along the supply chain. At the end of the day, those are some of the things that affect prices," he added.

The tax impact on price 

In the last five years, the Government has added a sh350 excise duty on fuel. In the 2016/2017 and 2018/19 fiscal years, the Government increased excise duty on petrol by sh200.

Part of the increase was to generate sh196.4b that would be used for road maintenance. This financial year, finance minister Matia Kasaija read a budget that slapped an additional sh150 excise duty on diesel and petrol.

The increments over the years led to a rise in the total excise duty on fuel from sh1,200 to sh1,350 to date. This means on each litre of fuel sold at a fuel station, the Government takes sh1,350 as taxes.

On kerosene, which is used for lighting and in some cases cooking by the rural poor, the Government increased the excise duty to sh300 per litre.

Some of the people interviewed said the Government should reduce the taxes on fuel. They believe lower taxes on fuel products will increase production and economic activities.

The Tax Justice Alliance Uganda proposed to the Government to maintain the old tax rate "of sh1,200 or even reduce it to 1,100" during the budget planning processes.

Experts' take on fuel 

Regina Navuga, the financing for development officer at Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI), said the rising fuel prices increase the cost of doing business because the incidence of tax is borne by the final consumer.

"We believe that the Government should not only be a tax collector but an active sector player like in other countries.

Elsewhere, governments buy, import, supply and sell fuel just like any other player, thus controlling the final fuel pump price to the final consumer," Navuga said.

"Uganda should not solely rely on the private sector to regulate itself, but should go beyond stocking fuel to covering the entire petroleum value-chain (upstream and downstream)," she added.

Paul Lakuma, a research fellow at the macroeconomic department at the Economic Policy Research Centre, said fuel prices have been largely stable but have usually been disrupted by political cycles.

"Oil is a value chain. Every part of the value chain has its dynamics," Lakuma said.

"The dynamics are driven by transport costs, storage, future market price, competition, macroeconomic news, taxes and concentration of the industry market structure. Given all that which is out of our control as a small consumer (price taker), I would say the prices are fair," he said.

On scrapping of taxes on fuel, Lakuma said: "I am not in support of the removal of taxation for the fuel segment. Just think about it; how shall we pay for all the elaborate social services such as Universal Primary Education, hospitals, roads?"

Fred Muhumuza, an economist and lecturer at Makerere University, explained that it is not taxes that are to blame for high fuel prices as those change marginally.

He noted that the increased cost of doing business is due to other factors such as imported inputs, electricity, and labour costs due to the high cost of living.

"Prices have been relatively stable over five years, ranging between sh3,500 and sh4,000 per litre of diesel or petrol. We have partly benefitted from lower prices per barrel at international level and stable exchange rate, which are the key drivers of fuel prices," Muhumuza said.

What gov't is doing 

In March this year, the Government, through the Uganda National Oil Company (UNOC), made an initial supply of 400,000 litres of fuel to Stabex International as it readies to fully participate in bulk selling of petroleum products downstream.

It is hoped that UNOC's participation in the downstream will create a more stable environment in terms of petroleum prices but also rid the country from the control of cartels.

Emmanuel Katongole, the chairman board of directors at UNOC, said the move is not to compete with players in the petroleum supply chain, but rather to complement the business that oil marketing firms are undertaking.

"The best way to get the process of manufacturing is to first prime the market by trading. This process of importing by UNOC in bulk and partnering with oil companies such as Stabex will help UNOC to prime the entire market so that when we start our own production, there will be no issues.

"The distribution and export routes will all be addressed. We are getting ready for something bigger and it is important that we do it now. In two to three years, we will be using the same systems to distribute our own refined products."

Uganda expects to begin producing oil in 2022. Government plans to refine portions of its oil for local use through the first national refinery in Hoima district.

Stabex general manager Daniel Cherutich said the supply agreement with UNOC goes a long way in ensuring a stable market. He said the market has been operating on the philosophy of demand and supply.

"There has been no intervention in the market to control the market (prices for both fuel retailers and consumers)," he said.

UNOC, which is mandated to manage the government's commercial interests in the petroleum sector, took a decision to engage in downstream petroleum trading operations to secure the supply of bulk petroleum products.

Service providers increase prices to cover the additional cost of fuel, vehicle maintenance and repairs, which are all heaped on the final consumer.