Fixed logistical costs drive fuel prices high in Uganda

KAMPALA, Uganda—The Minister of Energy and Mineral Development in Uganda, Irene Muloni has attributed the increase in fuel prices for both diesel and petrol to increase in fixed logistical costs and refinery premiums.

“Being landlocked and a net importer of Refined Petroleum Products, pump prices are a function of the fixed logistical costs which include port handling fees, transit handling charges, storage fees, transportation, taxes, clearing and marking fees. The combination of the logistical costs together with the cost of the imported products which increased as a result of increased refinery premiums in the Open Tender System since September 2017 have resulted in the increased pump prices,” Muloni said.

Muloni who appeared before parliament to respond to a concern raised by Kampala Central Member of Parliament Hon Nsereko Mohammed over the increasing prices of diesel and petrol in the Country; said that Uganda's consumption of Petroleum Products has continued to grow at 7% per year and on a daily basis, the country consumes an average of 2.7 million litres for each product of Petrol and Diesel. Of these, 91% is imported through Mombasa port and 9% through Dares Salaam port.

She said the interplay between the rise in crude prices and refinery premiums (since we import refined products only) are major causes of the rise in pump prices since the rest of the parameters like taxes, transport and handling costs have been constant.

On the international scene, she said the monthly average crude oil prices per barrel started rising from US$52.02 in August to US$ 55.74 in September, US$ 57.50 in October to US$ 62.49 in November and US$ 62.89 in December 2017 to US$ 69.45 in January 2018.

According to Muloni, the rise in the crude oil prices was due to the huge storm in US that shut down many of the production sites and refineries in US Gulf coast. Then oil prices continued to increase in November and December 2017 as the Organization of Petroleum Exporting Countries (OPEC) countries agreed on extending production cuts further to June 2018, showing their willingness to balance supply and demand.

Muloni said the strategies to keep the country well supplied, therefore, hinge on the effectiveness of the import routes and the in-country storage facilities. ln this case, Mombasa and Dar es Salaam ports together with other terminals in Kenya are all being utilised by Oil marketing Companies (OMCs)to import products into Uganda.

“On the supply side we have had stable import of Petroleum Products in the country irrespective of the current infrastructural developments in the Kenya Pipeline Company where the new Nombasa – Nairobi pipeline is undergoing wet testing. With the fair competition that has been built over the years in the liberalized downstream petroleum sub-sector and the measures put in place to ensure a steady supply of petroleum products, the pump prices will continue to respond to the forces of demand and supply in a free market economy,” Muloni said.