On Tuesday, during the plenary, the Minister of Energy and Mineral Development, Dr. Ruth Nankabirwa Ssentamu presented the Petroleum Supply (Amendment) Bill, 2023, to Parliament for its First Reading.
The proposed legislation gives the Uganda National Oil Company (UNOC) the authority to supply imported petroleum products to licensed oil marketing companies.
According to Nankabirwa, the Petroleum Supply Amendment Bill is to stand as a pivotal piece of legislation that not only carries immense significance but is also of urgent necessity in Uganda’s evolving energy landscape.
She explained that as her ministry navigates the complex intersection of environmental sustainability, national security, and economic stability, the proposed Petroleum Supply Amendment Bill 2023 serves as a vital instrument to address and rectify critical issues within the petroleum supply sector.
She asserted that the bill is crucial and that its implementation is urgently needed to meet the pressing challenges in Uganda’s gas and energy sector.
“The government believes that supporting UNOC will enhance its competitiveness on the international stage and benefit the people of Uganda. The main aims of the bill include assigning UNOC as the sole importer of petroleum products for the Ugandan market, empowering the Minister to nominate other entities for importing petroleum products, enhancing supply security, reducing pump prices, and generating additional revenue for UNOC to support infrastructure development.
She explained to the House that by assigning UNOC the responsibility of importing petroleum products, the bill intends to reduce reliance on external suppliers, streamline the importation process, eliminate unnecessary transactions in the supply chain, and ultimately make petroleum products more affordable for consumers.
“The government also hopes that UNOC’s involvement in the importation supply chain will generate additional revenue to finance other infrastructure projects that UNOC has a vested interest in on behalf of the State,” she said.
Why it’s urgently required as if it was needed yesterday
Currently, Uganda finds itself in a position of dependency as a net importer of petroleum products, with over 90 per cent of its supplies flowing through the Mombasa port in Kenya and the remainder via the Dar-es-Salaam port in Tanzania. This importation process is carried out independently by licensed Ugandan Oil Marketing Companies (OMCs) through established structures in Kenya and Tanzania.
Within the existing importation framework, Ugandan OMCs have traditionally obtained their petroleum product import allocations through affiliated Kenyan OMCs, which are registered participants in the import structures of both Kenya and Tanzania.
However, in April 2023, Kenya’s government instigated a transformative shift in its petroleum products import system, replacing the Open Tender System with a Government-to-Government importation arrangement in collaboration with the Governments of the United Arab Emirates and the Kingdom of Saudi Arabia. This transition was prompted by the need to address pressing importation challenges faced by Kenya.
Notably, the Open Tender System, while competitive in terms of pricing and consistent supplies, had its drawbacks. It occasionally left Uganda exposed to supply vulnerabilities, rendering Ugandan OMCs secondary in the event of supply disruptions. These vulnerabilities posed additional challenges, resulting in Uganda receiving relatively costly petroleum products and subsequently impacting retail pump prices.
“With the amendment of the Petroleum Supply Act,” states Nankabirwa, “the Ministry of Energy and Mineral Development will retain its overall responsibility for regulating the importation of petroleum products into Uganda. The Ministry will collaborate closely with the Office of the Attorney General to formulate statutory instruments to operationalize aspects of the law as necessary.”
Under the proposed Bill, the Uganda National Oil Company (UNOC) will assume responsibility for sourcing and supplying petroleum products to the licensed Oil Marketing Companies (OMCs) engaged in importing these products into Uganda. As a result, the OMCs will continue to distribute these products to consumers through their existing commercial arrangements and retail fuel pumps.
Formation of Partnership to guarantee security supply
A pivotal aspect of this transformation involves the establishment of a strategic partnership to ensure the security of supply. UNOC has entered into a five-year contract with Vitol Bahrain E.C., with Vitol providing essential financing through a working capital facility backed by its global balance sheet.
Together with UNOC, this partnership is committed to ensuring competitive pricing of petroleum products and maintaining buffer stocks in both Uganda and Tanzania, which can be tapped into during supply disruptions. Furthermore, the partner has pledged to fund the construction of additional capacity in collaboration with UNOC, totalling 320 million litres at Namwambula, Mpigi.
Vitol, a formidable partner with a 2022 turnover of $505 billion, is the leading independent global trader, bringing a robust regional presence and a commitment to enhancing UNOC’s capabilities in this domain. This strategic alliance not only secures the supply chain but also equips UNOC to meet the demands of the Uganda refinery’s petroleum product offtake.
Against the backdrop of these transformative changes, it is essential to note that the Ugandan government remains engaged in active dialogue with the Government of Kenya, with a shared commitment to ensuring a seamless implementation of this policy change. Both nations recognize the importance of regional stability and economic growth in this critical domain.
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