The Independent Uganda: You get the Truth we Pay the Price
The current situation place the country’s businesses in a disadvantaged position compared to their peers in the region
Kampala, Uganda | ISAAC KHISA | Fuel consumers in Uganda could have been in a celebration mood as they reap benefits of reduced prices of the precious commodity that drives many economies around the world. Production costs could have reduced and so is the transportation costs of various products and services, placing the East African nation in a more competitive position in the region.
But the opportunity, unlike in other countries in the region, is being blown away as fuel prices remain constant, according to The Independent analysis, six months since prices for the commodity started falling on the international market.
This trend is expected to worsen following government’s decision to increase taxes on the commodity next financial year which begins next month.
The government has in the new financial year increased taxes on petrol from Shs1, 200 to a Shs1, 350 and that of diesel from Shs Shs880 to Shs 1,030 per litre, representing a markup of Shs 150 per litre on either items.
Similarly, the government has also increased taxes on kerosene by Shs100 to Shs 300 per litre, a decision that makes the commodity expensive to the low income earners who rely on it for lighting especially in the rural areas.
Currently, fuel is trading at an average of Shs 3750-4,050 for petrol, Shs3650- 3,780 for diesel and Shs 3,250-3,280 for kerosene per litre depending on the fuel station at the time crude oil price on the international market is trading at below US$40 a barrel.
Back in 2016, petrol was trading at Shs 3,258, diesel at Shs 2,576 and Kerosene at Shs2, 384 per litre at the time crude oil prices stood US$40.15 a barrel.
These current fuel prices makes Uganda the most expensive country to buy fuel in the East African region, with the industry observers pointing fingers at lack of a fuel regulatory agency and government’s high appetite for revenue to finance the budget.
Moses Kaggwa, the acting director for economic affairs at the Ministry of Finance, Planning and Economic Development revealed during the two-day Post Budget 2020 Dialogue E-Conference in Kampala on June.24 that the high fuel prices in the country is attributed to a combination of factors.
He cited high transportation costs, high taxes, foreign exchange fluctuations and the long time lag that exists when a fuel dealer place an order and the time fuel actually arrives on the Uganda market.
“However, finance ministry has requested the energy ministry to ascertain the reason behind the high fuel prices,” he said.
Fuel dealers in the country have over the years argued that it takes at least three months for local consumers to feel the impact of changes in fuel prices on the international market.
But this is now more than three months, and none of the dealers that The Independent attempted to speak to including Vivo Energy and Oryx Energy remained tightlipped on reasons behind the high fuel prices.
Jane Nalunga, the executive director at Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda told The Independent in an interview that the current development makes local fuel consumers including manufacturers and transporters miss out on the opportunity presented as a result of lower fuel and electricity prices.
She said lower fuel prices could have translated into lower production and transportation costs, helping the country to keep inflationary pressures low.
“Fuel fuels the economy and the moment fuel prices go up transport costs also go up and so is the price of bananas or generally food and that isn’t good,” she said.
Oil prices on the international market slumped in March after a price war broke out between Saudi Arabia and Russia. It kicked off when Saudi Arabia failed to convince Russia to back production cuts that had been agreed with the other members of the Organization of the Petroleum Exporting Countries.
In January this year, the price of a barrel of Brent Crude had touched $70 and by mid-March the price war had help it to fall to close to $30 a barrel. The situation was worsened with the global coronavirus crisis that hit fuel demand as airlines slashed services and travel restrictions reduced the amount of fuel consumption.
The price of oil fell below $25 a barrel – the lowest level since 2002. Whilst the prices had begun to rise hitting around $40 a barrel, it reversed on June.24 due to high inventories and worries about a second wave of the coronavirus pandemic.
According to Uganda Bureau of Statistics, fuel consumption in the country stands at more than 68.167 million litres, 4.976 million litres, 72.56 million litres and 10.075 million litres for petrol, kerosene, diesel and jet A1, respectively, a month.
Prices dropped in most countries all over the world, even countries that use less fuel than Uganda. And the countries that use a must high volume saw even a more significant reduction in the price. In Uganda, most are not aware of the global situation over oil pricing. So the government wants the price to stay consistently higher to keep its tax collection high. If the price were to drop as the crude oil price dropped, Uganda would miss out on a significant amount of direct taxes. If prices decreased, consumption would increase, which is useful for a more substantial number of businesses, not just the government as it is now. Then the tax revenue would increase over broader participation from the entire country.
Simple math. If I am spending as a business 200.000ugx per day on fuel for the business, price drops 10%. That is direct, in the pocket savings of 20,000 ugx per day. If my one truck operation is on the road six days per week, then I am saving 120,000 ugx savings per week, 480,000 ugx per month. That can help me buy another truck and put another person in the workforce. That would benefit not only government tax needs, but the general population and business at the same time. We all know operators with 3 and 4 vehicles on the road, do the math. So we see the government, in reality, is hindering growth just for quick tax money.