Buyuma Weekly Uganda Energy Roundup(Wk #28)

Hello There,

Welcome to this week's?Buyuma Ugandan oil and gas weekly update?covering?the latest energy?news that made waves in Uganda.

According to UNOC, the importation of petroleum products through Kenya is managed by the Supply Planning and Vessel Scheduling Committees, which meet monthly to optimize the utilization of the Kenya pipeline system.

At a meeting on May 22, 2024, UNOC was allocated 65,000MT of Diesel (AGO) for import, with a delivery date range of July 2-4, 2024. However, due to higher demand from Ugandan OMCs, UNOC was allowed to discharge 80,000 Metric Tonnes of Diesel at the Mombasa Port on July 5, 2024, with 65,000MT allocated to Ugandan OMCs and the remaining 15,000MT to be availed in August 2024.

Below are?updates that made the headlines in Uganda's Energy?sector

Nairobi slaps Uganda with fresh hurdle on fuel imports

Kenya has thrown a fresh hurdle on Uganda’s direct fuel import scheme, doubling the bond fee for imported consignments destined for Kampala to $45 million.

Uganda's Energy and Mineral Resources minister Ruth Nankabirwa said Kenya increased the requirement on the size of bond fees at the Vitol Tank Terminal International (VTTI) storage facility in Mombasa from $15 million —posing a bottleneck to Uganda’s hopes of lowering pump prices of the commodity.

VTTI is a privately owned terminal that ties into the Kenya Pipeline Company pipeline network in Mombasa and gives access to the Ugandan market and other landlocked countries further west.

A bond fee is a bank guarantee that an oil company importing fuel for the transit market (usually duty-free fuel) uses to secure duties and taxes payable to the relevant revenue authority should goods be disposed of locally.

The bond can be used to offset taxes in case the company decides to dump the fuel locally and help KRA avert losing billions of shillings in taxes and levies.

Sources privy to the matter say that the Ministry of Energy in Kenya wrote to the Kenya Revenue Authority (KRA) to increase the fee —a change that is expected to be passed on to consumers in Uganda.

Banks issuing the bonds are likely to take time to increase the amounts to reflect the new bond fees, leading to more time demurrage charges before the cargo is cleared by KRA.

The higher demurrage charges will be passed to consumers in Kampala. Kampala had hinged on the direct importation of fuel to lower pump prices, months after President Yoweri Museveni blamed the costly fuel on middlemen in the Kenyan fuel importation structure.

Revelations of the higher bond fee demands from Kenya once again bring to the fore the spats that are largely attributed to Kenya’s decision to enter into a Government- to- Government-backed importation of fuel.

Kenya tells Uganda to come clean on extra imported oil cargo

Kenya did not impose a bond premium on Uganda’s oil cargo that docked at the Port of Mombasa early this month as claimed by Uganda’s Energy and Mineral Resources Minister Ruth Nakabirwa.

The minister had claimed that Kenya’s Energy cabinet secretary Davis Chirchir had written to the Kenya Revenue Authority to increase the fee, an allegation Kenya has termed as illogical.

“The cabinet secretary has no such power. Uganda must come clean on undeclared consignment of 17,000 cubic metres of diesel that attracted additional charges,” a top official at the ministry told the Star.

He added that KRA is guided by the East Africa Customs Management Coordination Act which must be adhered to by anyone operating a custom bonded warehouse.

According to Kenya, VTTI, a private terminal handling Uganda’s consignment is privately owned and determines its tariffs.

“Therefore, other than taxes which are statutory, including the rules of operation of custom bonded facilities, the rates charged by VTTI are purely commercial and are set by them and not the Government of Kenya.”

Uganda’s imports amount to about 60 KT, necessitating smaller vessels which increases freight costs. For instance, the diesel vessel recently brought by Uganda carried extra material not required locally, merely to fill the vessel and optimize freight economics.

Documents seen by the Star show that Vital imported 82,000 cubic metres of diesel under the direct import deal by Uganda National Oil (UNOC), higher than the 65,000 cubic metres approved by Kenya.

In a letter dated July 2 to Commissioner of Customs and Border Control Dr Lilian Nyawanda and copied to Kenya’s Energy PS Mohamed Liban, KRA Commissioner General Humprey Watanga and chief manager of Petroleum Monitoring Unit at KRA Benard Kibiti, VTTI is acknowledging receiving more than expected volumes.

“In this regard, we wish to appeal to your good office to consider a request to support the receipt of the said cargo of gasoil imported by UNOC,” the letter reads in part.

“The volumes received by the terminal above the volume currently assessed by KRA to be covered by the existing bond shall remain in the terminal pending completion of the two processes or as may be guided by KRA’s resident officer.”

Several regional papers have quoted Nakabirwa saying that Kenya doubled its warehousing bond to $45 million in a bid to frustrate Uganda’s inaugural G to G oil consignment.

The Ugandan oil agency is now forced to pay $37.83 per cubic meter to use the KPC’s infrastructure, a move likely to push up pump prices in the landlocked nation by 30 percent, despite a drop in global rates.

UNOC explains Mombasa first import diesel discrepancy

The Uganda National Oil Company (UNOC) has clarified the discrepancy in diesel consignment destined for Uganda, citing higher local demand by Ugandan Oil Marketing Companies (OMCs) than initially agreed upon with Kenyan authorities.

FULL UNOC Statement

CLARIFICATION ON MEDIA REPORTS REGARDING UNOC’S FIRST PETROLEUM PRODUCT SHIPMENT

KAMPALA, FRIDAY 12TH JULY 2024:

Recent media reports have raised concerns and questions regarding the Uganda National Oil Company Limited’s (UNOC) first shipment of petroleum products that has attracted a bond fee from the Kenya Ports Authority.

There are also claims that UNOC under-declared its shipment. UNOC would therefore like to correct the impression created by the misleading media reports as follows;

The importation of petroleum products through Kenya is managed and coordinated by the Supply Planning and Vessel Scheduling Committees under the leadership of the Ministry of Energy and Petroleum of Kenya.

The Committees meet every month to plan for and schedule the petroleum products imports through the Mombasa port to optimize the utilization of the constrained capacity of the Kenya pipeline system to ensure that the region, using the Kenyan route, is always well supplied and that there is a limitation on delays of vessels to discharge the imported products and also that the Kenya pipeline system is not clogged with product.

At the Supply Planning meeting of 22nd May 2024 held in Nairobi, UNOC was allocated to import 65,000MT of Diesel (AGO) to be received into the KPC system in Mombasa with a delivery date range of 2nd to 4th July 2024.

During the engagements between Kenya and Uganda it was recognised that the delivery of the 80,000 Metric Tonnes (MT) by UNOC would affect the planned delivery of a portion of the transit Diesel to Uganda through the Government to Government arrangement as earlier scheduled for delivery to the Mombasa port within June 2024 with planned loadings for delivery to Uganda from July 2024.

The government of Uganda and the Government of Kenya, through the respective Ministries of Energy thereafter reached an understanding to allow for the G-2-G transit portion to be prioritized for delivery to Uganda within July 2024 and for UNOC to first avail to the Ugandan Oil Marketing Companies 65.000 Metric Tonnes and the rest of the 15,000MT to be availed to the Ugandan Oil Marketing Companies within August 2024.

It was against the above understanding that on 5th July 2024, the Cargo ship-SINBAD carrying 80,000 Metric Tonnes of Diesel destined for Uganda was allowed to fully discharge at the Mombasa Port: about 28,000 Metric Tonnes discharged to the VTTI Terminal and the rest (about 52,000 Metric Tonnes) to the KPC Terminals in Mombasa.

UNOC subsequently communicated to the Ugandan Oil Marketing Companies that the earlier allocated monthly demand of 80,000 Metric Tonnes will be split and they will only access from UNOC 65,000MT and a portion from the government to government delivery to meet the July demand.

This is as per the vessels that had been planned under the Government to Government supply arrangements for June 2024 but spilled into carly July 2024 (M/T IXORA carrying 85,000MT of Diesel).

Going forward, the petroleum products importation and supply destined for Uganda shall be done by UNOC as per the Petroleum Supply Act, 2003, as amended in November 2023.

The UNOC must import the entire demand for the country otherwise there will be a shortfall in supply.

We give our assurances to the Public that UNOC together with its partner Vitol Bahrain prudently conducts business and are committed to ensuring the security of the supply of petroleum products into Uganda.

For further inquiries, please contact:

Tony Otoa Chief Corporate Affairs Officer

[email protected]

Uganda state oil firm signs fuel sales deals with 80 marketers

Uganda National Oil Company (Unoc)?signed sales and purchase agreements (SPAs) with the market’s biggest fuel dealers, in contracts that will tie over 80 oil marketers in Uganda to the State-owned firm for the long term.?

This development follows the recent signing of the tripartite agreement between the governments of Uganda, Kenya, and Unoc at State House in Nairobi.

The SPAs establish a formal agreement between Unoc as the supplier and the oil marketing companies (OMCs) as the buyers of bulk petroleum products and clarify the roles and responsibilities of each party in the supply chain.

“The agreements with our clients, the OMCs have been completed and so what remains is delivering the vessel/products and the products hitting the fuel pumps,” said Peter Muliisa, Unoc’s Chief Legal Company Secretary.

“With the signing, everything is now set,” said Mr Muliisa. “What remains now is to bring in the first vessel to start delivering the fuel. We expect the first ship under Unoc will be here in July.”

Five companies, including Vivo Energy, Moil, Rock Global Oils, Petro City and Nile Energy inked deals with Unoc at Kampala Serena Hotel, with more companies expected on Wednesday to sign deals that will see the sole supplier rake in billions in revenue.

Unoc chief executive officer Proscovia Nabbanja and Mr Muliisa signed on behalf of the company, while executives of the OMCs signed for their respective companies.

Besides being the sole supplier, Unoc will also have a strong hand in transporting petroleum products arriving in Uganda, operating vessels and oil barges expected to join the company’s portfolio, a development that will see it dominate the industry.

Mr Muliisa said that based on the growth projections of the downstream segment of the industry, Unoc will require a new vessel every month to deliver volumes of fuel that can meet the market demand, which currently stands at seven million litres of fuel per day.

The market has been growing at seven to nine percent per year but is projected to peak at nine to eleven percent in the next five years.?

Unoc has negotiated deals with at least 83 dealers out of the more than 100 OMCs in Uganda, categorised as large to medium operators, while the smaller and micro dealers will continue to buy products from the market’s giants.

Petroleum Fund Received Revenue Worth Shs125.9bn In 2023-Report?

The Petroleum Fund received revenue (tax and non-tax) totaling to Shs125.9 billion compared to Shs81.9 billion as reported in June 2022, says the newly released report from the Accountant General’s Office.

According to Petroleum Fund Reports and Financial Statements for the year ended 30 June 2023, total revenue is constituted by tax revenues amounting to Shs118.6 billion [94%] and Non- Tax revenue worth Shs7.4 billion [6%].

“The 54% increase in revenue was largely due to increased corporation and withholding taxes collected during the period. This is attributed to increased oil and gas activity following the Final Investment Decision that was announced in February 2022 and the drilling of production wells that commenced in January 2023,” the report reads in part.

It adds that the increase in the non-tax revenue is mainly due to increased surface rentals and training fees paid by oil companies.

“Signature bonus paid during the period relates to two companies that is, Uganda National Oil Company and DGR Energy Turaco Uganda- SMC Ltd following the signing of Production Sharing Agreements for Kasuruban and Turaco Blocks respectively,” the report further reads.

The Fund received revenue totaling to Shs35.47bn in 2020, Shs155.01bn in 2021 and Shs81.96bn in 2022.

According to the report, during the period (June 2022 to June 2023), nil withdrawals were made out of the Petroleum Fund to the Petroleum Revenue Investment Reserve (PRIR) for investment, Uganda Consolidated Fund (UCF) to support the annual budget and the Uganda National Oil Company (UNOC) to fund its approved investments.

Financial Position of the Fund The report indicates that the value of the Fund stood at Shs246.6 billion by 30th June 2023 compared to 121.1 billion as at 30th June 2022.

The increase in the Fund position of Shs125.4billion is attributed to the increase in the revenue collections during the period compared to the previous financial year.

The Petroleum Fund is established by Section 56 of the PFMA as a depository into which petroleum oil revenues that accrue to the Government shall be paid.

In accordance with Section 56(3) of the PFMA, the Minister of Finance is responsible for the overall management of the fund and oversees all transfers into and withdrawals from the fund.

That's it for this week. Until next time, Cheers!