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VITOL PROCUREMENT UNFOLDINGS: Why Uganda must not ignore the Kenyan route in importing petroleum products

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Uganda’s monthly market consumption refined petroleum products is 185,000 m3, out of which 16,650 m3 is jet fuel, according to the experts in the energy sector.

“The overall annual consumption of petroleum products is 2,220,000 m3. Over 90% of the product demands are supplied through Kenya competitively procured through the open tender system (OTS) and now Government to Government Tender System (GtG),” they add.

It should be remembered that the loading of products destined for Uganda are mostly done in Kisumu and Eldoret. The Planned construction of a pipeline from Eldoret in Kenya to Kampala was put on hold while recently there has been a new jetty commissioned in Kisumu to load barges to supply Uganda.

The product cost-and-freight (C&F) at the respective loading points in Kenya is the same for all oil marketing companies (OMCs). The less than 10% of Uganda’s product requirements are supplied through the Tanzanian route which is less competitive compared to the Kenyan side due to the long distance and the associated higher transport costs.

Meanwhile, the government of Tanzania’s fuel requirements are conducted through BPS since 2011. Under this system, purchases of petroleum products (Diesel, Petrol and Jet-A1) are made from a pool of imports obtained from suppliers selected through a competitive bidding process.

 What should not be tampered with:

 To maintain price competitiveness, the purchase of bulk products for the region through the Kenyan system of OTS should not be disaggregated. Uganda must continue to ride on the Kenyan economies of scale to benefit from competitive pricing.  Ugandan product must move by pipeline to the furthest point possible i.e., Kisumu.

 Shifting to the Tanzania route is not a viable option:

 The tax regime in Kenya is more favourable as it is based on the fuel accessible to the OMC compared to Tanzania where the taxable fuel is based on the declared volumes on the ship which are not fully accessible to the OMCs.

 The assets to move petroleum products into Uganda are mostly in Kenya and not Tanzania and moreover the truck turnaround in Tanzania is much longer. There is a huge cost impact as compared to Kenya given the latter’s clear geographical and logistical advantages.

Sourcing from Tanzania will largely render the storage facilities in Jinja redundant. Fuel cannot be trucked through Western and huge parts of Central Uganda and be offloaded in these facilities and then reloaded and backtracked. The costs associated with double handling will be prohibitive.

To be negotiated to improve supply reliability and pricing competitiveness: o The GOU to lobby the GOK for preferential and dedicated loading in Kisumu and local supply in Kenya to other locations such as Eldoret and Nakuru.

Advantages of Kenya Vs. Tanzania

 Infrastructure in Kenya provides more operational advantages.  There are multiple options of transportation [road, rail, and lake] between Mombasa and the inland terminals towards Western Kenya providing a quick and more economical access route to Kisumu for offtake by Ugandan Oil Marketing Companies (UOMCs) compared to only the road transportation from Dar es Salaam to Uganda and related transportation rates.

There is a rail connection from Mombasa into Uganda which when rehabilitated can provide an alternative to road transportation up to Kampala.

The tax regime in Kenya is more favourable as it is based on the fuel accessible to the OMC compared to Tanzania where the taxable fuel is based on the declared volumes on the ship which are not fully accessible to the OMCs.

Comparative fuel transport cost to Uganda

Kisumu remains best option as offtake point for petroleum products into Uganda given that more of the pipeline is used to convey the products. Based on the advantages of sourcing through Kenya versus through Tanzania highlighted above, the difference between the most cost-effective route combined with the best transportation mode and the least cost-effective route with the given [with no other alternatives] transportation by truck is Sh415 per litre. This translates to an annual cost burden of Shs921,300,000,000 on the higher side and Shs552,780,000,000 on the lower side for the Ugandan economy.

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