Just Why Can’t Fuel Prices Come Down in Uganda? [opinion]

Just when we all thought that it would take some time before some countries would, yet again, cringe at the sight of deplorable economic numbers, the oil industry has served up arguably the biggest business story of the year – the collapse of the price of a barrel of oil.

Few, if any, saw it coming: that in a space of five to six months, the international price of a barrel of oil would drop by more than 40 per cent to less than $60.

Much of the pain is now being felt in Russia, a country that depends heavily on a g performance of oil that the value of its national currency remains battered.

And yet, in Uganda, life continues normally. We are not even bothered to find out whether RT Global Resources, the Russian company that is competing with a South Korean firm to build our oil refinery, could be hurt by the ailing health of the Russian economy, and thereby impact on its Uganda plans.

No, we are a lot more concerned about why music artistes such as Jose Chameleone should dare the public with pricey music shows when many of us are struggling to get by.

Uganda appears so detached from the global economy that our only connection to the current slump in the price of oil is the sense of envy we feel when we watch the nine o’clock news of people in other countries who can take longer trips with their SUVs as a result of the cheaper price of fuel.

If there is any doubt over this, the recent festive season offers a good example. A one-way bus fare to Kisoro went for Shs 100,000 a few days before Christmas, a rip-off considering the usual fee is roughly Shs 25,000. Travellers to Ibanda paid an eye-popping Shs 60,000, up from the normal Shs 15,000.

The bus owners say this was their time to cash in on the huge demand for transport.

If that is not convincing enough, considers this: while setting electricity tariffs in Uganda, Umeme, the power distributor, considers the costs of production, especially the rate of inflation, the exchange rate, and the price of oil.

While the Uganda shilling has depreciated against the dollar, just more than 10 per cent since January 2014, the bigger drop in international oil prices and a slump in inflation to a single digit should ideally see a decline in the price of electricity tariffs that Ugandans pay. But, alas, this is Uganda. Instead, electricity tariffs are only going up.

So, what exactly is wrong in this country? How come Uganda appears to operate under its own separate rules of economics? The reasons vary. The most obvious is the level of greed that runs high in this country. There remains a mismatch in the manner in which fuel is priced in Uganda, so much so that institutions such as the World Bank have raised questions over that.

There is little public information on how petroleum companies price their fuel. What is known is that they factor the cost of transportation from the port of Mombasa to Uganda. What they do not say is that the demand for fuel appears to be growing at a faster pace compared to the cost of transportation, which, ideally, should lead to a drop in the price of fuel. Again, that is not happening in Uganda.

Uganda’s economy is so liberalised that companies have too much liberty to abuse the system. And this liberalization has not come with consumer-protection lobbyists. Instead, government’s policy of fueling competition in the petroleum retail industry has not worked it has only encouraged shoddy businessmen to put up pump stations that sell adulterated fuel.

To give the devil its due, the main petroleum companies have managed to make it hard for the sale of adulterated fuel by placing pressure on government to weed out companies that do not play by the rules.

Nevertheless, the strength of the petroleum cartel in the country – controlled by the likes of Shell and Total – have so much leverage over the petroleum retail market it is almost difficult for them to align their prices to global economic trends. That is why fuel prices hardly ever go back to their earlier levels after a crisis.

It appears government has failed to reign in these fuel dealers. About five years ago, just after Uganda had faced one of its worst fuel crises after Kenya’s post-election violence, government put out rules to fuel dealers to have a contingency plan. Fuel dealers were asked to have at least two-week reserves that the country could depend on in case a crisis struck.

Few, if any, took the order seriously. The country remains prone to fuel crises. Uganda needs divine intervention on all fronts.

The writer is the business editor of The Observer.

Source : The Observer

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