Uganda Hoping To End High Fuel Prices, Disrupted Supplies

The year 2022 saw perhaps the most volatile fuel prices in the last few decades both on the local and international markets.

By the end of July, for example, a litre of petrol cost an average of 6,500 Shillings, while diesel went for 6,200 Shillings. The fuel prices started rising in the second half of 2021, with economists pointing at the global demand that was arising from the revived economic activities after the measures against the COVID-19 pandemic were lifted.

After February 2022 when Russia declared war on Ukraine, the price of a barrel rose even more sharply to more than 124 US Dollars, from an average of 40 US Dollars in 2020. This led to a sharp increase in the prices of refined products. There were more issues in the supply chain as it became more expensive and long for shipping companies to move the products, especially from or around the war-ravaged region of north and central Europe.

The sanctions by the western countries against Russia, the third largest producer, meant that there would be reduced global supply. For Uganda, a net importer of petroleum products, matters were made worse by the increased transportation costs on the high seas. In 2021, when economies started to reopen, the sudden high demand for international shipping led to a sharp rise in costs, yet some shipping companies were still not ready to resume full capacity, leading to delays in transportation.

In March, a six-day blockage of the Suez Canal when the Ever Given ship got stuck in sandstorms paralysed most of the global supplies. The ship was heading from China to the port of Rotterdam in the Netherlands when it ran aground amid poor visibility and high winds from a sandstorm that had struck most of northern Egypt during the time.

The United National Conference of Trade and Development, UNCTAD, says 80 per cent of the products consumed globally are moved from country to country by ships. And, according to UNCTAD, shipping costs rose by up to 72 per cent compared to pre-Covid-19 periods and have remained high to date.

Moving a 40-foot container from Beijing, China for example to the East African coast costs as much as 9,500 dollars compared to less than 2,000 dollars at the beginning of 2020.

In Uganda, the new measures against the COVID-19 pandemic that required truck drivers to pay for and get tests at the border before crossing into Uganda, saw them park their trucks at Malaba and Busia for 10 days, further escalating the costs of petroleum products, which accounted for the bud of the cargo.

Even after the issue was resolved and supply restored, the prices remained high, blamed on external factors like the high crude products. By July 2022, fuel prices had risen by 80 per cent in less than one year, forcing many motorists to park their vehicles and opt for other means including footing, bicycles and public means.

The Ministry of Energy and Mineral Development resisted public pressure to put price caps on petroleum products but Honey Malinga, the Director of Petroleum, said that marketers would be sanctioned if they breached the ‘reserve price’ (which the ministry declined to reveal).

The prices have since dropped gradually, to about 5,200 per litre of petrol, while diesel costs a little higher at 5,550 at fuel stations run by market leaders like Shell and Total. The smaller marketers were quoting a litre of diesel at 5,250 Shillings.

As the global factors ease and crude prices fell to around 79 US Dollars a barrel by the end of December, as well as the anticipated stabilization of global political and economic situations, Ugandans will hope that the local prices continue falling.

In his address to the nation on New Year’s Eve, president Yoweri Museveni reiterated his stand against subsidies and tax waivers on fuel which were adopted by neighbouring and other African countries. He also said the government was negotiating with some countries that refine fuel to be able to sell directly to Uganda and exclude middlemen. This he said, would make supply more stable and the products cheaper.

He insisted, however, that Russia, which already offered Uganda the opportunity to get cheap oil, is not part of the negotiations because this would disrupt the ‘friendly relations with some of the western countries like the US and the European Union.

The start of operations by the 4.5 million litre MT Kabaka Mutebi II between Kisumu and Kawuku near Entebbe has also raised hope of increasing supply, reducing the average cost of transportation of the fuel products, and a further fall in the prices of finished products in Uganda.

This capacity is equivalent to the capacity of 150 fuel tankers on the road, according to the analysts. It is not clear how much the impact will be, but Mike Mukula, the director of the vessel operator, Mahathi Infra Uganda, said lowering the price of fuel and filling the 70 million litre reserve are the major target of the venture.

The tank mover is four times larger in the tank than Kenya-owned MV Uhuru which moves petroleum products between Kisumu and Port Bell. Mahathi Infra is constructing three more ships mainly targeting fuel transportation, according to the directors, as part of the 120-million-dollar investment.

Expensive Diesel

The high cost of diesel relative to that of petrol continues to raise questions amongst Ugandans who have been used to the opposite. Currently, diesel is selling at more than 300 shillings a litre higher than petrol.

A similar situation has been reported in many countries over the last few months though for different reasons. In November last year, the UK, one of the biggest consumers of Russian crude and petroleum products had significantly reduced its imports from there and announced that its oil imports from Russia would end in 2022.

This meant that the UK would look for the products elsewhere including. Before the full implementation of the sanctions, Russia was supplying 8 per cent of the UK’s oil needs, but 18 per cent of diesel needs, meaning that the sanctions are putting more pressure on diesel prices than on other products.

However, even before the war in Ukraine, the demand for diesel was rising much faster than that for petrol, especially for tracks and cars in Europe and the US, as well as in Asia where there is still a high use of diesel in factories, as economic activities rebounded. Since diesel requires less input, time and vigour to refine than other products like petrol (gasoline) and jet fuel engine, its cost is naturally lower.

When there is a shortage of petrol and other more finely refined products, in the absence of crude, the refiners turn to diesel to get the other required products, and experts say this has been happening especially in some US industries.

While diesel particles can still be cracked to get other products like petrol, “nobody has figured out yet how to make” gasoline into diesel, according to Tom Klozer, Founder of Oil Price Information Services of the US, in his analysis.

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