Old Pipeline Holding Uganda Economy at stand still

UGANDA: For the last one week, Uganda experienced a biting fuel shortage leading to significant increases in prices of petroleum products and threatened to cripple the economy of the landlocked country. The shortage has been blamed on supply hiccups on the Kenyan petroleum supply system and a new system of clearing cargo imported into the region. Some major towns are reported to have been low on fuel supplies, resulting in panic buying among motorists. Prices increased by between KSh6 and KSh10 a litre, to retail at USh3,800 (KSh135), up from USh3 600 (KSh128).

Retail prices of petroleum products in Uganda are determined by the market, which is unlike the situation in Kenya, where prices are capped. It is not the first time the country is experiencing fuel supply shocks and as in past cases, Kenya’s petroleum supply system is partly to blame for the shortages experienced in Uganda. A new system of clearing petroleum products, where marketers importing fuel to Uganda through Mombasa are required to clear the products under the Single Customs Territory, is partly contributed to the shortage.

Oil marketers that have operations in Kenya and Uganda said the shortage was due to supply constraints on the Mombasa-Nairobi-Eldoret pipeline used to move products destined for Uganda. Marketers usually pick up the products at Eldoret and move them by road to Uganda. The shortage happened at a time when the country was hosting senior government officials from the regions – including heads of state from Rwanda and Kenya. In the just concluded EAC meeting, the Heads of States sanctioned the procurement process for Engineering, Procurement and Construction (EPC) of the Eldoret-Kampala Pipeline.

The pipeline is expected to reach Kigali eventually. At the same time, Kenya Pipeline Company (KPC) is expected to start construction of a new line running from Mombasa to Nairobi to replace the 40-year-old line. Known as Line 1, the archaic pipeline has in the past been blamed for supply hiccups both in Kenya and Uganda. It has over time proved unreliable and seen oil companies shift their preference to use of tankers to transport fuel, which is costly, damaging to the roads and a risk to populations in areas along the transport routes. KPC on Friday started a search process for a financier of the line, expected to cost up to Sh43 billion ($500 million). KPC has recently procured the services of Chinese firm Shengli Engineering that will oversee the construction that is set for completion in 2016.

Despite the urgency with which the country needs an upgrade, the proposed pipeline that will run parallel to the current line has been dogged by delays. KPC has in numerous instances cancelled tender processes to procure the services of consultants for the design and construction of the line. “The pipeline will be of bigger size resulting in increased revenue that translates to increased contribution to the exchequer by KPC and the Oil marketing companies. It will solve the problem of product outages within the country and for export markets,” explained KPC in its tender documents.