BRIEF ON PETROLEUM SUPPLY ISSUES – HON ONEK’S STATEMENT


I was asking for this out of curiosity to understand the problem. Thought I would post it here too so that you can understand what the Minister said;

PETROLEUM SUPPLY DEPT / MINISTRY OF ENERGY AND MINERAL DEVT
BRIEF ON CURRENT PETROLEUM SUPPLY ISSUES

A: BACKGROUND

The Ugandan market consumes on average 110,000 cubic metres per month of products with an annual growth rate of 7% and it could be higher if there were no supply interruptions. Last year, the interruptions became rampant in September when we had inadequate Petrol for 3 weeks and the public was persistently seeking explanations from Government. These supply interruptions in addition to stifling business, become an opportunity for some unscrupulous individuals to cheat the desperate customers through overcharging them, which is not a good practice in a liberalized market whose core objective is to promote fair competition and security of supply.

The majority oil marketing companies operating in Uganda import their products through Mombasa and would ideally truck the product from Western Kenya whose pumping capacity is too low to satisfy the demand. This situation will remain so until the expansion of line 4 terminating at both Eldoret and Kisumu is complete most likely towards the end of this year. OMC’s are now forced to alternatively load from Mombasa and Nairobi.

Mombasa port has remained too busy to serve the region and some delays in discharge are always experienced, the reason why private unscheduled imports were discouraged.

Last year, the Government of Kenya communicated to all Oil Marketing companies that 70% of the available ullage in the Kenya Pipeline Company (KPC) systems would be for domestic consumption and the remaining 30% would be available for transit customers where Uganda, which takes close to 85% of the total transit cargo, would benefit. In further communication, all private imports into Kipevu Oil Storage Facility (KOSF) were discouraged as they were found to be contributing to congestion at Mombasa port and such private importers were advised to have their imports aggregated for all transit marketers and processed through the ullage allocation committee and accordingly the Open Tender System was recommended to only companies that had import Licenses and trading in Uganda, Rwanda, Burundi and Democratic Republic of Congo. In September 2010, bids were invited for Kenya Open Tender System (OTS) but did not take off.

It is expected to start this quarter and the guidelines have already been drafted.

B: EFFORTS BY GOVERNMENT OF UGANDA TO STABILIZE SUPPLY:

Consultations:
Efforts to address supply problems have always been in place but following the September 2010 supply crisis, the Permanent Secretary led a delegation to Kenya and met with the Government of Kenya officials including the Ministry of Energy, Kenya Revenue Authority (KRA), and CEOs of Oil Marketing Companies based in Kenya and Kenya Pipelines Company (KPC). The delegation equally moved to Mombasa, Nairobi, and Western Kenya terminals on the KPC line to find out causes of supply interruptions and come out with a way forward to address them. All discussions were fruitful and demonstrated joint effort to address supply problems to Uganda.

Following the visit, Government invited all Oil Marketing Companies in Uganda for a meeting on 12th October 2010. During discussions, the PS appointed an Interim Supply Coordination Committee to jointly advise Government in addressing supply problems to Uganda.

The Interim Supply Coordination committee comprises of a representative from Ministry of Energy and Mineral Development, Uganda Revenue Authority, Uganda National Bureau of Standards and representatives of the Oil Marketing Companies comprising of the following members:

1. Mr. Ivan Kyayonka – Country Chairman Shell Uganda Ltd (Chairman)
2. Mr. Mamadou Ngom – Managing Director Total Uganda Ltd
3. Mr. Isaac Mariera – Country Manager Petro Uganda
4. Mr. Harish Asodia – Managing Director Petrocity
5. Mr. Geoffrey Rugazoora – Chief Executive Officer Mogas Uganda
6. Mr. Eric Karambasaizi – Managing Director Delta (Secretary)
7. Mr. Abdinoor Farah – Managing Director Hass Petroleum
8. Mr.Aloke Kumar – Managing Director Gapco Uganda

The terms of reference for this committee were as follows:

1. Review the southern route and advise on:
a. the appropriate incentive structure(tax rebate) and transit time
b. the impact of regulatory requirement to use the route
2. Review and recommend ullage allocation, rules for the Open Tender System with its implementation modalities and lifting of product from Western Kenya
3. Review and advise on easing the lifting of Petroleum Products from Nairobi.

The interim Petroleum Supply Coordination Committee met twice and made a brief to the Ministry with the following recommendations:

Southern Corridor Route (Dar)

i. Transit time
It was recommended that the MEMD requests the Tanzania Government for 60 days instead of the present 30 days.
ii. Incentive/ Rebate
It was observed that this rebate is a result of the difference in transport costs via the Southern Corridor from Dar as compared with the Northern Corridor through Kenya. It was recommended that the benchmark should be Dar compared with Nairobi loading by trucks. The quantum of the incentive came to $60 per cubic metre. This incentive would apply on Diesel and Petrol only since Kerosene has no major supply problems given the low consumption.

Northern Corridor Route (Mombasa).

Ø Proposal to share ullage.
It was pointed out that the main limiting factor in Kenya is the capacity of the Kenya Pipeline Company to evacuate product from the import terminal at Kipevu (KOSF).
Under this item, members were looking for a basis for sharing the import ullage in Mombasa.
The following criteria were proposed for companies to share the Uganda ullage:
1. The participant must be a company in Uganda with retail facilities
2. The company or their Group must be a regular importer into Mombasa with product destined to Uganda and warehoused in their name.
3. The sharing of ullage should be linked to market share.
§ It was proposed that until reliable inland market share data becomes available, import share as compiled by URA / Customs be used as a basis.
§ The Oil Companies that buy from other companies (trading volume) would however have opportunity to propose adjustment of share by mutual agreement of the concerned parties.
§ It was further agreed that for the start the import figures should be for the period January to August 2010 and subsequently monthly basing on 3 months moving average.
§ URA was requested and it provided the import data per company.

Ø Loading out of Western Kenya

a) The Uganda Government was requested to negotiate with the Kenya Government to scrap the VAT charged on services when Ugandan companies load in Nairobi. All Ugandan Oil companies requested to be freed to load in Nairobi and Mombasa in view of the continuing low capacity in Western Kenya.
b) The companies with facilities in Nairobi / Mombasa agreed to extending loading facilities to the small companies (offer hospitality).
c) Companies with rail facilities were encouraged to assist those without by offering temporary hospitality to offload the wagons or accept wagons in exchange of trucks to those who do not have rail siding.
After considering the above, it was proposed that loadings out of Western Kenya also be based on import figures as compiled by Uganda Revenue Authority. The sharing will be on a 3 months moving average.
Open Tender System (OTS) –

§ Try OTS on all products starting with November 2010 tender for the December 2010 import.
§ Uganda OTS to be run together with Kenya and using Kenya rules and terms. In this respect, Kenya Companies would include their sister Uganda company requirement in their bid but basing on the Uganda published share of ullage as advised by Ministry of Energy and Mineral Development.

C: RESPONSE BY GOVERNMENT:

On 5th November 2010, the Government of Uganda wrote to Government of Kenya requesting that:
a. Beginning with December 2010 delivery, the Ugandan Oil Marketing Companies be facilitated to use the Open Tender System through their sister companies in Kenya using the Kenya terms and conditions.
b. The monthly dedicated ullage to Uganda of 32,800 cubic metres of PMS, 10,000 cubic metres of JET A1, 7,000cubic metres of BIK and 60,000 cubic metres of AGO be confirmed and communicated
c. All Uganda Oil Marketing Companies be freed to load from Mombasa and Nairobi in view of the continuing low capacity in Western Kenya.
d. Loading in Western Kenya for transit petroleum products to Uganda be done according to the inland market share figures that will be provided by the Ministry based on each company’s performance in Uganda.

Due to urgency of the matter, the Government of Uganda sent another reminder to Government of Kenya on 31st December 2010 which was replied in affirmative in February 2011 that:
i. The Open Tender System (OTS) Committee has already drafted transit tender terms and conditions which are expected to apply to Uganda and other transit markets when they are finalized.
ii. Allocated dedicated ullage to Uganda out of western Kenya for AGO, PMS and DPK in respective quantities of 41,500; 30,000; 20,500 cubic metres excluding Uganda’s IPP which has automatic ullage allocation. The balance of the volumes can still be trucked from Mombasa and Nairobi till line 4 is complete.
iii. All Ugandan Oil Marketing Companies will apply to Kenya Revenue authority (KRA) to load from Mombasa and Nairobi pending completion of line 4 pipeline construction.

Supply to Uganda since then has been stable because of continuous effort by Ministry staff and individual Oil Marketing Companies where we have engaged Kenya on daily basis to allow discharge of transit vessels.

Promotion of the Central Corridor has been taken to full discussions by the concerned Government departments and will soon yield results.

D: CONCLUSION:
We shall continue to work together to stabilize supply to Uganda and we call upon Oil Marketing Companies to freely share information with Government so that we can ably provide the necessary support.

We do commend the collaboration that was exhibited during the election time when supply remained uninterrupted and we do recognize the zeal exhibited by everybody in the sub sector.

Nina Mbabazi Rukikaire

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