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The hits and misses in the Petroleum Supply Act 2023

Minister Ruth Nankabirwa

Minister Ruth Nankabirwa

President Museveni has been very intent and categorical on ensuring that Uganda meets its target of first oil output and production in 2025.

To him, it appears, the oil drilling and subsequent refining, are Uganda’s leeway to achieving the much-revered Vision 2040 and its accompanying ambitions of economic independence and attaining middle-income status. This explains the rushed -albeit haphazard - enactment of several laws that affect not only the oil and gas sector, but also the energy sector at large.

On November 23, for example, the president assented to the Petroleum Supply (Amendment) bill of 2023, which had only been tabled by the minister of Energy and Mineral Development on October 31, 2023. The same has already been published in the December 1, 2023, Uganda Gazette.

This indicates that the bill was tabled, debated, presented to the parliamentary committee on National Resources, passed by parliament and signed by the president in less than three months!

As a justification to the enactment of the bill, President Museveni made a pronouncement on November 5, where he questioned the erstwhile mode of operation where middlemen exaggerated oil prices and increased the cost of supply of petroleum products in Uganda.

The astronomical speed at which the bill was signed notwithstanding, the bill seems to have been well-intentioned with capacity to make a paradigm shift in the country’s energy regime. According to its long title, the Act was passed for various reasons among which include the need to enable the Uganda National Oil Company (UNOC) to be the sole supplier of all imports to licensed marketing companies of petroleum products for the Ugandan market.

UNOC, to which this mandate has been bestowed, is a limited liability company owned by the Government of Uganda with an overall function of handling Uganda’s commercial interests in the petroleum sector and ensuring its efficient exploitation in a sustainable manner.

With the enactment of this law, UNOC’s mandate has been enhanced as it will now be charged with the role of importing petroleum products and distributing them to oil marketing companies. The act is also aimed at guaranteeing security of supply of petroleum products, improving petroleum product stock holding levels within the country and contributing to the competitiveness of consumer and retail pump prices, among other reasons.

Economically, there is a high likelihood of archiving a high stability of prices in the energy sector. This is because there will be a shift in the forces of demand and supply as all companies licensed to market oil products will purchase the petroleum products from one sourcing point without influence of external economic factors.

This will inevitably reduce the effects of asymmetric pricing that is synonymous with petroleum products. Asymmetric pricing is a phenomenon that relates to petroleum product prices rising akin to rockets whenever crude oil prices rise but only falling slowly like feathers when crude oil prices drop.

In other words, whereas an increase in the price of crude oil, as purchased from foreign producers, ordinarily leads to a quick increase in pump prices, a decrease in crude prices does not simultaneously lead to an equal decrease in pump prices. Simply put, oil companies are quick to increase pump prices in times of high crude oil prices but slow to reduce pump prices when there is a reduction in crude prices since they need to maximize profits in periods of increased crude prices.

With UNOC overseeing selling of petroleum products to intermediary marketing companies like Vivo energy and Stabex, the effects of asymmetric pricing will be minimized. Other economic benefits include consistency in supply of petroleum products whereby marketing companies will no longer decide how much fuel is in the market at a given period.

There will also be a diversification in the supply routes of the market hence shielding Ugandans from fuel cartels and other intermediaries that decide fuel prices according to their whims. The downside of the act is that there will be a reduction in the import duty paid by fuel companies whereby taxes initially paid by licensed marketing companies at the importation of petroleum products will no longer be paid.

The act is not clear as to whether UNOC will take over the tax obligations of importation of petroleum products or whether these obligations will be retained by marketing companies. Legally, on the other hand, the enactment of the Petroleum Supply (Amendment) Act might contradict provisions of the Competition bill.

On September 1, 2023, parliament passed the Competition Bill that had been returned by President Museveni on July 24, 2023. Much as the Bill is pending the president’s assent, the Petroleum Supply Act contravenes its provisions by creating a monopoly of importation of petroleum products. This undermines tenets of fair competition that are provided in the bill and contradicts one of reasons indicated in the act’s long title.

In order to reconcile the two laws, there is need to specifically provide for UNOC as an exception to provisions of the competition bill. The minister should come up with clear Regulations to put in effect the provisions of the act, whilst addressing these salient concerns.

The writer is an advocate of the High court.

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