Fuel prices in Uganda to stabilise but to stay high

Analysts say that between June 20 and July 20 2022, the price of fuel hiked from Shs6,000 to Shs6,500, which was the running increment since late March. However, since the start of August, prices have increased by Shs50.

In some places, diesel prices have dropped back down from Shs 6,500 to Shs 6,000 and Shs 6,150 a litre.

Why prices are stabilising

Analysts have attributed this shift to a 20% decrease in crude oil prices in the past two months from $120 to $96 a barrel in Western Europe and $90 in America.

They say that due to speculations about major global economies slowing down, due to the COVID-19 pandemic and Russia-Ukrainian war, plus inflation that recently swept across the world, the oil industry has been forced to cut crude oil prices to avoid a recession.

However, this decrease will take a while to reflect in the Ugandan market because the country is so far from international markets, and due to adjustments in the supply chain.

Why prices will stay high

Experts have warned that although prices may stabilise and fall gradually over the next months, they may never return to the 2021 levels and prior to that.

Tom Ayebare Rukundo, manager of economic and financial analysis at the Petroleum Authority of Uganda (PAU), says that crude oil prices on the global market are announced one month before the oil goes on sale. But some of it continues to be sold on a daily basis.

The oil is then transported to refiners who turn it into consumable products, which are then shipped off to international markets to be delivered to different countries. On top of the one month notice from the crude producers, this whole process takes about two months.

So while the new prices ($96) have been announced, in Uganda consumers are still buying from the batch that was sold at $120 a barrel.

Costly refineries

A report on oil industry statistics says that depending on the tax regiments in the supply chain, on the price of refined fuel, the fuel duty accounts for 30% and Value Addition Tax (VAT) takes 18%.

Refining petrol costs over 20% of the cost of the final product and slightly less for diesel. Distribution and marketing takes anywhere between 11% and 20% and the retailer takes about 2% in profit.

But in the past 12 months, refiners have more than tripled their charges from $9.3 as of June last year to $43.11 per 159 litres (a barrel) of crude oil for petrol, and $51 for diesel. Meaning that the increase currently being experienced by a consumer in Kampala is trickling down from refiners.

Weather

The coming months of winter in Europe are expected to aggravate prices due to high demand for gas in the concerned countries.

Fred Muhumuza, Economist, says that Uganda will be vulnerable because it will be demand controlling the situation.

“Winter is coming to the northern hemisphere so prices of gases and oil will increase even more and Uganda has no control, you need to adapt to the possible worsening of the situation," he said.

Transportation

It is a double bind for fuel retailers because transportation costs have also risen due to high fuel prices plus other overhead costs.

According to Frank Tukwasibwe, head of petroleum supply department at the ministry of Energy, the cost of transporting a litre of fuel from Mombasa to Kampala has risen.

Under normal circumstances, it costs anywhere between Shs 350 and Shs 500, but non-tariff barriers, delays and political tensions in Kenya (for transporters operating through the country) have made the system expensive.

In Western Europe, also, the war in Ukraine has interrupted the transport system.