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Gov’t on Rising Fuel Prices: Uganda is a Free Market Economy

The Ugandan Government has broken silence on the increased cost of fuel especially petrol, saying prices of petroleum products are determined by forces of demand and supply.

The remarks come high on the heels of a public outcry over the escalating fuel prices, affecting production costs.

The average price of petrol is UShs 4,283 per litre while diesel goes for Shs 3,993 at most fuel stations across the country.

State Minister for Energy Simon D’Ujanga told Parliament on Tuesday that Uganda is still a net importer of petroleum products in a liberalized downstream petroleum market where the prices are purely determined by the forces of demand and supply in accordance with the provisions of the Petroleum Supply Act, 2003.

“0n the demand side, Uganda’s consumption of petroleum products has grown by 9.6 percent 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,” said D’Ujanga.

Of these, 91 percent is imported through Mombasa port and 9 percent through Dar es Salaam port.

The Minister’s statement came days after Kyaka South MP Jackson Kafuuzi raised concern over the escalating fuel prices and the need for Parliament to be informed about the justification for the increase.

D’Ujanga today said to meet the rising demand for fuel in Uganda, the strategies developed to keep the country well supplied hinge on the effectiveness of the import routes and the in-country storage facilities.

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ln this case, he said, 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.

Supply

On the supply side, the Minister said Uganda has 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.

Increases to fuel prices impacts on transport across the country as operators seek to recover the increases by again passing these on to consumers.

In other words, more expensive fuel means more expensive transport and goods for consumers.

D’Ujanga being landlocked and a net importer of Refined Petroleum Products, 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,” he said.

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 Ug Sh3,800 in September and Ug Shs 3,777 for October 2018.

The Minister said this greatly negates the realization of would-be benefits of a reduction in international prices at the local pump in Uganda.

0n the international scene, the monthly average of crude prices per barrel was at its highest last month at $83.28 from OPEC but has started dropping this month.

The Minister said 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 further stated that 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.

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