Cyprian Musoke and Raymond Baguma
3 January 2009
interview
Kampala — PROBLEMS at Mombasa port, failure of the oil pipeline and transporters have conspired to cause a fuel problem. The energy minister, Daudi Migereko, explains the fuel shortage and how the Government plans to solve it in an interview carried out by Cyprian Musoke and Raymond Baguma.
Below are excerpts
Q: The last time there a fuel crisis, you promised to put in place measures for it not to recur. What has gone wrong this time round?
A: We have tried to solve the fuel supply problem, however, several internal and external factors are responsible for the supply problems of fuel, petrol in particular. Yes, supply was interrupted during the political crisis in Kenya. Otherwise, the main problem has been the bad state of the refinery at Mombasa and the pipeline which delivers products from the Mombasa to Eldoret and Kisumu from where oil companies get products to supply the country.
Secondly, power outages in Kenya have affected pumping of products through the pipeline and the production process at the refinery in Mombasa. This has interrupted supply.
Currently, we are having shortage of petrol in the country. This shortage is not only confined to Uganda but has also affected Kenya and the region.
Besides, whenever there is a shortage of petroleum products in the East Africa region, Kenya first takes care of her demands before they can permit any quantities for export to the neighbouring countries. That is where we have found ourselves now.
I must however, point out that we have diesel in good supply. It is only petrol in short supply. Indeed, before Christmas I informed the country that we had a problem with supply of petrol, but we would do whatever it takes to ensure that the general motoring public is not inconvenienced.
We have been working with the oil companies to ensure that if the refinery in Kenya cannot supply enough petrol on the market, they secure supplies from elsewhere. As per now a consignment of petrol has arrived at the port and deliveries have started trickling into the country
What about the new requirement by the Kenyan government on axle loads?
The Kenyan government banned transporters using four-axle trucks. They are required to configure their trucks to three-axles, as a way of saving our roads.
This means that trucks which would ordinarily carry 42,000 litres of fuel have to lower it to 32,000 litres per trip. That loss in terms of quantity which would be delivered per trip has reduced the amount of fuel that is ferried into the country.
We need transport companies to immediately configure their axle load so that they are permitted on the Kenyan roads. They must also acquire more trucks in order to be in a position to bring in an adequate volume.
The Government has been in constant liaison with the Rift Valley Railways (RVR) to transport fuel. It is doing a good job so far but as you know our railway lines require total overhaul.
Why should the axle load limitation be a problem yet the Kenyan government informed the Uganda fuel tanker drivers about it earlier?
It should not have been a problem; only that it took a lot of time for the transporters to make the necessary adjustments. But it's a move taken in order to save our roads. The Government has been incurring huge sums of money in repairing and maintaining them. The sooner the transporters comply, the better we shall all benefit - the Government, and the companies that have merchandise to transport.
Do the oil companies have their own reserves to stem such shortages?
Before the oil companies are licensed, they are required to show proof of sufficient storage capacity to last for at least 10 days even when supplies are not flowing into the country. But demand for petroleum products in the country has been growing at a rate that had not been envisaged. This includes growth in transport and construction happening in the country that runs on petroleum products. Incidentally, in the past, we never used to generate electricity using petroleum products. Today we need close to 500,000 litres of diesel to daily to generate the electricity supplementing the hydropower produced at Jinja. This has contributed to the increased demand for petroleum products. Furthermore, most urban families now have a vehicle or vehicles which depend on petroleum products. On a daily basis we consume over 2.2 million litres as a country. This demand has grown by over 6-7%.
Some companies have been known to take advantage of the crisis to hoard and influence the pricing. Do you think there is need for the Government to intervene and control the price?
Disruption in fuel supply prompts speculation and the tendency to hoard. That is why the emphasis has been put on addressing the supply constraints so that enough volumes can flow into the country. The moment the message comes out clearly that although there is disruption in supply now, tomorrow the products will be flowing into the market, those who speculate and hoard in order to profiteer would be discouraged.
The law permits my ministry to continuously monitor and regulate the industry. When we had the Kenyan political crisis, the companies which tried to profiteer were penalised. We are doing what it takes to ensure we monitor what is happening in the industry and filling stations. We have been having meetings with oil companies to discuss the state of affairs, so that the ordinary consumer is not inconvenienced or fleeced.
As a policy we avoid setting prices for the industry because as you may recall, in the past some governments tried price controls but failed. Our view is that the best way to resolve issues of pricing is by addressing supply issues. In his New Year State of the Nation address, H.E President Yoweri Museveni pointed out that as a government we do not intend to solve some of these problems by fixing prices. He clearly indicated to the public that we should be seeing a fall in prices as we deal with the supply constraints that are affecting delivery on the market.
But industry players do not envisage a price fall given the high exchange rate of the Uganda shilling against the dollar?
We have a pricing formula which we use in the industry. Next week we are having a meeting with the oil companies to consider all the pertinent variables. But the critical thing is ensuring that there is sufficient quantity of petroleum products to meet demand. Once we deal with that, it will be easy to talk about the pricing, and appreciate the impact of the exchange rate.
The last fuel scarcity created by the Kenyan post-election violence caught us off-guard when reserves in Jinja were empty. Have they been worked on?
I have explained that by the time of the last fuel crisis, our tanks were full. If they had not been full, we would have had a worse situation. We have, however, been given permission to restock and that is what we are working on.
But you remember the hike in prices was there for only a few days and then we talked to the oil companies and the prices came down. We would not have been able to do that if there had been no available reserves from which to fill.
You loaned them?
They had to bring back the fuel loaned to them. The arrangement we had was that the reserves were playing a dual role. There was the aspect of strategic reserves for the country and the aspect of using stocks to stabilise supply on the market. We permitted companies at that time to use some of the space at the storage tanks for the purpose of ensuring stability in supply.
Then what was the issue about paying back for reserves they had taken?
The issue of paying back came up through the Auditor General's report that some companies had not returned what they were loaned. That matter has been solved. The companies that were loaned paid back only that we had to take one of them to court. In their view, it would have been better for them to pay us the monetary value as at that time. As a ministry, we were insisting that they pay us in form of stock because it is easy to maintain the value and you know what you are dealing with. When you are paid back in monetary terms, you may never be in position to restock the same amount of fuel loaned.
What is the status of the Eldoret-Kampala oil pipeline project?
There was a tender issued out for the development of the Eldoret-Kampala pipeline. And a company (Tamoil) was selected to develop and operate the pipeline. Construction should start around March or April 2009 once compensation matters have been finalised. Our view is that given that construction of the pipeline entails enhancing the capacity of Jinja storage tanks and developing of new storage tanks in Kampala, we need at this stage, to start looking at the Jinja oil storage tanks. Not only from the point of where they stand now, but under the new arrangement of the Uganda-Kenya oil pipeline concession.
What is the progress in the development of the Kampala and regional fuel reserves?
The plan to increase the capacity of the Jinja oil reserves is at an advanced stage. Construction is about to start. It is important that everybody gets to know. Similarly, designs for a new oil storage terminal in Kampala are ready. However, work has been delayed by a dispute over the land and this is before the courts. We are hoping that the courts will expedite the process of solving this dispute so that construction can start.
On the construction of the Eldoret-Kampala pipeline, the company is ready to start work as soon as compensation issues for the land along the route are cleared. This is a matter being handled by the Ministry of Lands, Housing and Urban Development, together with Tamoil, the company which is going to construct the pipeline.
How about the development of the up-country reserves?
The critical issue at the moment is the pipeline and increasing the capacity of the Jinja oil storage tanks. This is in addition to building new storage facilities, with a capacity of about 180 million litres in Kampala. After that, we are planning regional storage facilities in Kasese, Gulu, Nakasongola and Mbale. These will have to be linked to our oil fields. Everything we are doing at the moment should take into account the fact that we are about to go into oil production as a country.
Incidentally, that is the sustainable way of solving this problem of disruption in fuel supply. The NRM government's strategy is to ensure that we fast-track production of our own oil so that we are in a position in the long term to totally solve this problem.
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