Uganda Contemplates Granting Vitol Monopoly for Petroleum Supplies: A Risky Choice
The Ugandan government is nearing the final stages of a significant decision – the potential granting of a monopoly for petroleum product supplies to the Swiss-based Dutch energy and commodities trading firm, Vitol Inc. This exclusive arrangement has raised eyebrows due to its lack of advertisement and the absence of an open bidding process.
Vitol, renowned as the largest oil trading company globally, carries a controversial history. In December 2020, the United States imposed a hefty $135 million fine on Vitol following a federal investigation that revealed a pattern of paying “millions of dollars in bribes to numerous public officials” in Brazil, Ecuador, and Mexico. These bribes provided Vitol with improper competitive advantages, resulting in substantial illicit profits.
The multi-billion-dollar deal under consideration has reportedly been brokered by the enigmatic Kampala lobbyist, Abu Mukasa.
Fuel Supply Monopoly: A Controversial Move
The unfolding drama began when Uganda’s Energy Minister, Ruth Nankabirwa, revealed plans to amend the Petroleum Supply Act, intending to empower the Uganda National Oil Company (UNOC) to be the exclusive supplier of petroleum products to all oil companies operating in the country. Starting from January 2024, the oil marketing companies would directly receive their supplies from UNOC, a shift aimed at enhancing supply security and promoting competitive pricing.
It is expected that later this year, the Ministry of Energy will enter into an agreement with Vitol Bahrain, a subsidiary of Vitol, enabling them to monopolize the supply of oil products to UNOC. The arrangement is designed for Vitol to procure and provide all petroleum products required in the Ugandan market, with UNOC reselling these products to private oil marketing companies, including Total Energies, Starbex, and Vivvo, among others, for profit margins. The government’s hope is that these margins will contribute to UNOC’s self-funding and support its commercial activities.
However, the viability of this arrangement has been questioned. Critics argue that granting monopoly rights to a Dutch corporation could undermine Uganda’s sovereignty and pose substantial economic risks if Vitol fails to meet the country’s petroleum product needs.
Concerns and Risks
Awarding exclusive rights to Vitol could eliminate the benefits of competition, potentially leading to higher fuel prices for Ugandan consumers and deterring foreign direct investment. Furthermore, Vitol’s existing presence in Uganda through its connection with Vivvo adds complexity to the situation.
The roots of this controversy date back to March 2023 when Nankabirwa informed UNOC’s CEO, Proscovia Nabbanja, about a directive from President Museveni. The directive instructed the Ministry to replace the Kenya Open Tender System (OTS), which had governed petroleum product imports into Uganda. The OTS, initially run by the Kenyan government, entailed a global monthly tender, attracting top global oil suppliers, promoting competition, and, in turn, better fuel prices.
Museveni’s directive further urged the Ministry to support UNOC in handling all petroleum product imports for the benefit of Ugandans. The aim was to reduce UNOC’s reliance on the National Treasury for funding crucial projects such as the Kampala Storage Terminal, EACOP, and the proposed oil refinery, thereby contributing to price stabilization.
However, the decision to partner with Vitol came as a surprise. Vitol’s selection appears to have sidestepped an open bidding process or due diligence to ensure the company’s suitability for the task. Furthermore, official records indicate that Vitol previously supplied 8 million liters of fuel to Uganda in the run-up to Kenya’s 2022 general elections. The fuel delivery took an astonishing eight weeks, and the quantity supplied fell short of the paid amount, leaving commercial risks with UNOC.
The case of Tanzania rejecting petroleum products supplied by Vitol due to non-compliance with government specifications adds to concerns. Critics argue that this gives rise to apprehension about Uganda’s dependence on a single supplier.
Experts worry that this deal could compromise Uganda’s sovereignty and put it in a vulnerable position. The five-year contract with Vitol requires a 12-month notice for termination, offering Uganda little room to intervene if issues arise. Given Uganda’s status as a net petroleum product importer, the deal’s worth exceeds Shs 16tn, and it is suggested that Ugandan officials may have limited bargaining power in dealing with a multinational entity like Vitol.
Additionally, Vitol is not mandated to maintain significant reserves of petroleum products, potentially jeopardizing Uganda’s fuel supply during global conflicts or pandemics. The monopoly rights granted to Vitol have sparked concerns about neo-colonialism, with a company headquartered in Switzerland having significant control over Uganda’s fuel supply.
The decision to grant Vitol this exclusive right raises critical questions about the potential impact on Uganda’s economy and its capacity to hold Vitol accountable in case of non-compliance. This issue could have far-reaching consequences for Uganda’s energy sector and its position in the global fuel market.
Corruption and Previous Incidents
The controversy surrounding Vitol extends beyond Uganda’s borders. In many African countries, including West Africa, Swiss trading companies, including Vitol, have a dominant position in the import and distribution of petroleum products. Recent reports suggest unethical practices, such as supplying substandard fuels, have raised environmental and health concerns.
Investigations have uncovered that these companies have been involved in selling fuels containing high levels of sulfur and toxic substances, leading to outdoor air pollution, respiratory diseases, and premature death.
Vitol has faced allegations of cartel-like activities, inflating premiums, and profiting at the expense of retailers. Additionally, instances of failing to meet government supply commitments in Bangladesh have caused significant financial burdens to the government.
In 2020, Vitol was fined by the U.S. for market price manipulation on fuel imports for California. The settlement involved charges of corruption-based fraud and attempted market manipulation, further reinforcing concerns about the company’s ethical conduct.
The decision to grant a company with a history of questionable practices an exclusive role in Uganda’s petroleum supply system invites scrutiny and demands a careful examination of the potential consequences for the country’s economy, environment, and energy security.