Pump Prices Of Petroleum Increase in Uganda
By Eva Nabawanuka
AjabuAfrica.com

KAMPALA , Uganda- November 3 - The minister of Energy and mineral Development,Hon Daudi Migereko has said that, in the last two weeks the pump prices of petroleum products have been increasing to the concern of all of us.

This is the result of market forces playing in a liberalized economy. Government policy is to allow prices be fixed by the market but without creating cartels or price collusion.
The principal factors responsible for the current price levels are; the exchange rate, transport issues and insurance premium.

He added that the Uganda shilling has depreciated over the past 3 – 4 months and more so since the beginning of October 2008.

The monthly average exchange rate for the US dollar has gone up from UG Sh.1,607 in June to sh.1,793 in October. More pronounced is the depreciation during October itself where the rate has increased from sh.1,675 at the beginning of the month to sh.2,118 as of 27th October 2008. This is a depreciation of 21%.

“The pump prices of petrol, diesel and kerosene at the beginning of the month were sh.2,550, sh.2,450 and sh.2,250 per litre, respectively. If international prices of the products had not reduced, the depreciation of the shilling would have meant that the pump prices should be adjusted to sh.3,100 per litre for petrol, sh.2,930 for diesel and sh.2,720 for kerosene, respectively. Fortunately, this has been cushioned by the fall in international prices,”He said
Migereko said that the international prices of crude oils have fortunately fallen since their record highs in June/July this year.

“The price of light sweet crude on the New York Mercantile Exchange (NYMEX) dropped from a monthly average of $127 per barrel (bbl) in July (the maximum was $147/bbl) to $78 this month. The price of OPEC basket of crudes dropped from $128/bbl to $57 during the same period, he added.

He noted that,in the price build-up, the c.i.f. price of the product constitutes about 53% of the pump price.
Other factors such as exchange rate, distribution costs and profit account for the balance.

This means that pump prices will not drop by the same ratio as that for international price of crude or imported products. While this should result in lower pump prices, some oil companies report that they are still holding stocks procured at the high international prices of July 2008 mentioned above.

Migereko said that Petroleum products for Uganda are imported mainly from the Middle East / Arab Gulf, transported by sea to Mombasa and transitted through Kenya to Uganda by a combination of pipeline, railway and road trucks.
There have been recent negative developments on this route which have had the effect of pushing up costs of delivering the petroleum products.

The increased piracy around the coast of Somalia has resulted in higher insurance premium being levied. Besides, some ships also hire security escorts.The capacity constraint on the Kenya pipeline has persisted, much as the Pipeline authorities are carrying out repairs and capacity enhancement. The work is not yet completed. The pipeline cannot deliver sufficient volumes of fuel and therefore oil companies are forced to lift some of the fuel mainly by road and to a limited extent by rail, which are more expensive modes of transportation.

Implementation of regulation limiting trucks to maximum of three axles by Kenya with effect from October 2008 has meant the trucks must carry less volumes/weight of fuel, thus pushing up the unit cost per litre delivered. Besides many transporters are still modifying their fleets to meet this requirement. Once this is done more trucks will be available to ferry products.

About two weeks ago, long-haul truck drivers went on strike protesting poor customs yard at Malaba and Busia border points. This caused oil companies to run down their fuel stocks in the country without adequate replenishment. The problem of the customs’ yard has been attended to at the highest level. The strike is now over, and oil companies are starting to build up stocks, help bring down prices. The build up of stocks will also help bring down prices.

Migereko said that the above developments have contributed to an over all increase of price of fuel.
During this period, the impact of decrease in the world price was more than offset by the depreciation of the local currency against the US dollar and the increase in cost of freight, insurance and transit costs through Kenya.
The Ministry will continue to monitor these developments to ensure that the oil companies do not take advantage of the consumers and the general public.

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