Impact of granting UNOC monopoly on oil supply in Uganda

By Alor Steven, | Economist at the Civil Society Budget Advocacy Group (CSBAG)

Executive Summary:
The recent signing of the Petroleum Supply Amendment Act 2023 by President Yoweri Museveni, granting the Uganda National Oil Company (UNOC) a monopoly on supplying petroleum products to the Ugandan market, has generated mixed reactions. Proponents argue that the move will eliminate middlemen and stabilize oil prices, leading to economic benefits for Uganda.

However, opposition members express concerns about the negative consequences of creating a monopoly, alleging potential economic harm and lack of transparency.

Background:
The Petroleum Supply Amendment Act 2023 aims to address perceived issues in the oil supply chain by granting UNOC an exclusive role in supplying petroleum products within Uganda. The rationale behind the move is to eliminate middlemen, stabilize oil prices, and enhance UNOC’s capacity to negotiate fair prices for the country.

Positive Impacts:

1. Stability in Oil Prices: The elimination of middlemen is expected to reduce fluctuations in oil pump prices, providing consumers with more stable and predictable fuel costs.
2. Capital Base Enhancement: Granting UNOC a monopoly is anticipated to strengthen its capital base, allowing for better negotiation power in securing favourable deals for Uganda in the international oil market.
3. Potential for Economic Growth: A more stable and controlled oil supply system could contribute to a conducive environment for economic growth by providing a reliable energy source for industries and businesses.

Concerns Raised by Opposition:

1. Monopoly Drawbacks: Some Members of Parliament (MPs), particularly in the opposition, argue that creating a monopoly may not benefit the economy. They express concerns about the potential negative impact on competition, innovation, and consumer choice.
2. Lack of Transparency: Opposition MPs question the lack of transparency in the bill, pointing to the involvement of Vitol Bahrain and the registration of UNOC in Kenya. This lack of information raises concerns about potential conflicts of interest and competition with Ugandan interests.
3. Economic Rights and Income Impact: Critics, such as MP Charles Tebandeke, warn that the new legislation may negatively affect the incomes of Ugandans and impede their economic rights. They argue that the government’s interests may prevail at the expense of ordinary citizens.
4. Government-to-Government Agreement Impact: The move to end the Government-to-Government agreement with Kenya, effective January 2024, raises questions about the potential economic and diplomatic consequences of this decision.

Recommendations:

1. Transparency and Accountability: To address concerns about transparency, the government should provide detailed information about the involvement of Vitol Bahrain and the registration of UNOC in Kenya. Transparency measures will help build public trust and confidence in the oil supply system.
2. Mitigating Monopoly Concerns: Implement mechanisms to ensure fair competition, prevent monopolistic abuses, and protect consumer interests. This may involve regulatory oversight and periodic reviews of UNOC’s operations.
3. Public Consultation: Engage in meaningful public consultation to gather diverse perspectives and ensure that the concerns of various stakeholders are taken into account in shaping oil supply policies.
4. Economic Impact Assessment: Conduct a thorough economic impact assessment of the move to end the Government-to-Government agreement with Kenya. Evaluate the potential consequences on diplomatic relations and economic cooperation.
5. Monitoring and Evaluation: Establish a robust monitoring and evaluation system to track the impact of the new legislation over time. Regular assessments will enable the government to make informed adjustments and address emerging challenges.

In conclusion, while the granting of a monopoly to UNOC has potential benefits, addressing the concerns raised by the opposition is crucial for ensuring a balanced and effective oil supply system that promotes economic growth while safeguarding the rights and interests of all Ugandans.