Uganda’s fuel prices have begun to decline after the government took over the responsibility of sourcing and importing petroleum products, signaling a shift in the country’s petroleum supply chain.

Recent reports show that some petrol stations managed by Vivo Energy Uganda (Shell) have reduced petrol prices to UGX 5,190 per litre, down from over UGX 5,300 in July. In Naalya, Kampala, diesel is now selling at UGX 5,050 per litre, a drop from the UGX 5,200 recorded last month.

Data from the Uganda National Bureau of Statistics (UBOS) shows that in August 2024, diesel prices fell by 1.4%, compared to a 1.3% decrease in July. Petrol prices experienced a larger drop of 2.0% in August, up from a 0.6% decrease the previous month.

The reduction in fuel prices is partly attributed to cost savings achieved by oil marketing companies (OMCs). Issa Kietoo, the marketing manager of Stabex Uganda, explained that OMCs are now saving between UGX 100 and UGX 150 per litre, thanks to the removal of Kenyan middlemen and the stronger Ugandan shilling.

This price drop follows a significant policy change in December 2023, when the Uganda National Oil Company (UNOC) took over the importation of petroleum products. It should be remembered that President Yoweri Kaguta Museveni signed the Petroleum Supply (Amendment) Act, 2023, granting UNOC full control over fuel imports. This change was a response to Kenya’s shift from the Open Tender System (OTS) to a Government-to-Government (G2G) arrangement, which was seen as cumbersome and costly due to the involvement of multiple stakeholders.

In March 2024, the Energy and Petroleum Regulatory Authority of Kenya granted UNOC a license to directly import petroleum products into Uganda. According to the government, this move will help ensure a stable fuel supply, boost UNOC’s capacity, and reduce the financial burden on the national treasury.

UNOC now distributes fuel, including petrol, diesel, jet fuel, and kerosene, to OMCs in Uganda. The direct importation strategy, Energy Minister Ruth Nankabirwa said, eliminates unnecessary costs in the supply chain.

She added that part of the savings made by UNOC would be passed on to OMCs, who are expected to further reduce prices for consumers at the pump.

Last year, Vitol, a Swiss-Dutch company, was contracted to supply all petroleum products to Uganda under this new system. Nankabirwa expressed optimism that the reduced logistical costs would result in lower domestic prices, insulating Uganda from sharp fluctuations in global oil prices.

Despite the recent price cuts, the government hopes to see petrol and diesel prices fall below UGX 5,000. Nankabirwa urged OMCs to reflect the savings in pump prices, cautioning them against inflating costs unnecessarily.

Experts at the Economic Research and Policy Centre (EPRC) at Makerere University have previously raised concerns about the pricing power of major fuel companies. In Uganda’s liberalized market, prices are typically determined by supply and demand, but the dominance of large firms such as Vivo Energy and Total Energies may allow for price manipulation. Smaller fuel companies are often forced to follow the pricing trends set by these market leaders.

In contrast, Tanzania’s government plays an active role in regulating fuel prices, ensuring they remain affordable for consumers. The EPRC recommends a similar approach for Uganda, arguing that the government should negotiate with key players in the fuel sector to bring prices down. They also propose establishing a regulated price to prevent price gouging during supply shocks.

UNOC has explained that final retail prices may vary across OMCs due to differences in logistical, operational, and network costs. However, Nankabirwa emphasized that the government’s new importation strategy, which bypasses costly intermediaries, should help lower fuel prices for Ugandans. UNOC has ensured competitive pricing by negotiating favorable terms with Vitol, and the direct importation process is expected to promote competition among OMCs, ultimately benefiting consumers.

Under this arrangement, UNOC will import 180 million litres of fuel products, sufficient to meet Uganda’s fuel needs for nearly a month, as the country consumes about 6.5 million litres daily. Over 90% of Uganda’s annual fuel supply, valued at around $2 billion, is imported through Kenya’s ports, pipelines, and roads. With UNOC now at the helm of petroleum imports, the government anticipates greater stability in fuel prices and enhanced security of supply.