What UNOC petroleum products import and supply monopoly means to the sector

Parliament has passed the Petroleum Supply (Amendment), Bill 2023, giving the Uganda National Oil Company (UNOC) exclusivity to import and supply all petroleum products destined for Ugandan market.

The Petroleum Supply (Amendment), Bill 2023 is aimed at eliminating the middlemen in the oil supply chain that are said to be the cause of fluctuations in oil pump prices.

UNOC is a government owned company established to handle government’s commercial interests in the petroleum sector.

“Uganda imports 90 percent of its petroleum products through Kenya and 10 percent through Tanzania. The system currently imposes three layers of middlemen from overseas refinery to the Ugandan oil marketing companies. Each of the middlemen companies infuses a profit margin which is ultimately fed into the final pump price,” said Emmanuel Otaala, the chairperson of the Committee on Environment and Natural Resources, which scrutinized the Bill.

Otaala was presenting the committee report on the bill during the plenary sitting of Tuesday, 14 November 2023.

Unpredictable pump price

The committee observed that Uganda’s current inability to purchase oil directly from the refineries, leads to an extra markup on Uganda’s fuel from Kenyan companies and insecurity in supply of petroleum products which contributes to high and unpredictable pump price.

If assented to, the Bill will build UNOC’s capital base as it is will be able to negotiate fair prices for Uganda, an opportunity not enjoyed now.

Dependence on Kenyan brokers

MPs said the Bill is timely in eliminating dependence on Kenyan brokers who according to the committee findings, have adversely disadvantaged Ugandans in access to petroleum products timely and in the required quantities.

“Giving UNOC a monopoly is like strengthening our own child, it is for our own good that we get rid of middlemen who take the big portion of the profit,” said Stephen Baka (NRM, Bukooli County North).

Alioni Yorke (NRM, Aringa South County) observed that UNOC is fully owned by government and vouched for the removal of Kenyan competitors who, he said, made Ugandans victims of unstable oil prices.

“We are tired of having our prices controlled by brokers from the neighboring countries. Many of us, yes even MPs have been the victims of oil prices. This Bill is meant to protect our own interests in the sector,” he said.

Worries about monopoly  

A section of MPs was however opposed to the Bill saying creating monopolies has not benefited the economy.

“Past experiences of monopolies including UMEME, the Enrico agreement, the Iron ore agreement, Dura cement agreement have cost the country money and set a bad precedence for monopolies in Uganda,” said Paul Akamba (NRM, Busiki) who presented a minority report.

He argued that creating a monopoly is unconstitutional as it prohibits fair competition.

The opposing legislators criticized the move by UNOC in signing an agreement with an international oil company known as Vitol that will act on its behalf to purchase oil from international refineries.

Financial capacity of UNOC questioned

This according to the committee findings is because UNOC currently lacks the financial capacity to directly purchase petroleum products from oil refineries and shall thus be buying from Vitol.

As a result, Vitol shall finance the supply of the petroleum products up to delivery points in Kenya on a non-immediate cash payment basis, to enable UNOC pay after supplying the oil marketing companies within Uganda.

Nathan Nandala-Mafabi (FDC, Budadiri County West) was afraid that this is likely to enrich Vitol at the expense of Uganda.

“It would have been better that we give UNOC money to trade directly. When we bring in Vitol the shareholder of Vivo energy that trades as Shell, I can tell you we might be helping them to make more money instead of benefiting Ugandans,” Nandala Mafabi said.

He added, “Vitol will now source for money all over the world to supply us oil but there will be interest, so the moment we approve a monopoly fuel prices will be high”.

The Bill now awaits the Presidential assent.