Fuel pump prices in Uganda have hit through the roof, causing fears that it may result into a rise in commodity prices and ultimately trigger inflation.
Currently, a liter of petrol in Kampala is averaging Shs4,400 up from an average of Shs3, 800 in January this year. Diesel prices are also on the increase.
Fuel pump prices have been increasing since the year began, with varying explanations on the reasons behind this trend.
The recent sharp increase in fuel prices has already attracted the attention of Parliament.
On Thursday 16th November 2018, Kafuuzi Jackson Karugaba (MP Kyaka South) raised concern over the escalating fuel prices and the need for Parliament to be informed about the justification for the increase.
In response, Simon D’Ujanga, the State Minister for Energy in a statement dated Tuesday 20th November 2018 gave a number of factors for this trend.
He largely attributed the recent sharp increase in fuel prices to international factors.
Uganda being landlocked and a net importer of Refined Petroleum Products, D’Ujanga said pump prices are a function of international prices of crude, refinery gate prices for products and the United States
Dollar exchange rate against the Ugandan Shilling plus 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 July 2018, has resulted in the increased pump prices,” D’Ujanga said.
He added that the United States Dollar exchange rate against the Ugandan shilling has been rising for the last three months and reached this year’s highest at Shs3,800 in September and Shs3,777 for October 2018. “This greatly negates the realization of would-be benefits of a reduction in international prices at the local pump in Uganda,” he said.
On the international scene, the Minister said the monthly average of crude prices per barrel was at its highest last month at $83.28 from OPEC and has only started dropping this month.
“Holding other factors constant, therefore, the effect of the drop in the international crude price is expected to reflect on the Ugandan market as well,” he said.
He added: “In conclusion, the interplay of the crude prices and refinery premiums as well as the exchange rate are major causes of the rise in pump prices since the rest of the parameters like taxes, transport and handling costs have been constant.”
The Minister explained that Uganda’s consumption of petroleum products has grown by 9.6% within the last two years whereby the country now consumes a monthly average of 174 million liters of fuel compared to last year’s 168 million liters. Of these, 91% is imported through Mombasa port and 9% through Dar es Salaam port.
To meet this demand, he explained, the strategies developed to keep the country well supplied hinge on the effectiveness of the import routes and the in-country storage facilities.
“In this case, Mombasa and Dar es Salaam ports together with other terminals in Kenya are all being utilized by Oil Marketing Companies (OMCs)to import products into Uganda,” he said.
On the supply side, he said “we have had stable import of Petroleum Products in the country. 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.”
He added: “With the measures put in place to ensure a steady supply of petroleum products and fair competition in the Downstream Petroleum Sub-Sector, my Ministry will continue to monitor the sub-sector and engage the oil marketing companies to ensure that the citizens do continue to get value for money from the consumption of petroleum products.”
