BY Phillip Karugaba AND Martha Mutamba
The Petroleum Supply (Amendment) Bill, 2023: Anti-competitive or not?
The Petroleum Supply (Amendment) Bill, 2023 (“the Bill”) that seeks to amend the Petroleum Supply Act, 2003 was tabled before Parliament for the first reading on 31 October 2023. The Bill aims to do the following:
- To secure the supply of petroleum products;
- To improve petroleum product stock holding levels within the country; and
- To contribute to the competitiveness of consumer and retail pump prices.
To achieve these objectives, the Bill seeks to designate the Uganda National Oil Company Limited (“UNOC”) as the main importer and supplier of petroleum products destined for the Ugandan market. All licensed oil marketing companies will be required to purchase their petroleum products from UNOC or any other person nominated by the Minister of Energy and Mineral Development to import and supply petroleum products in Uganda.
In a press release dated 31 October 2023, the Ministry of Energy and Mineral Development highlighted the supply chain disruptions faced in the country that stem from changes to the existing importation structure. The Ministry also stated that with the amendment to the Petroleum Supply Act, it would maintain the overall responsibility of regulating the importation of petroleum products into Uganda. Furthermore, UNOC would be responsible for sourcing and supplying petroleum products to the licensed oil marketing companies currently involved in importing petroleum products to Uganda. The oil marketing companies would only continue with selling the products to consumers through their commercial arrangements and the retail fuel pumps.
The Ministry also announced that a five-year contract had been negotiated between UNOC and Vitol Bahrain E.C. (“Vitol”). Under the contract, Vitol will finance the importation and supply of petroleum products into Uganda by providing UNOC with a working capital facility and it would work with UNOC to ensure competitive pricing of petroleum products. Security of supply in the country would also be guaranteed under the partnership with buffer stocks in Uganda and Tanzania that could be called upon should there be supply disruptions. Vitol has also committed to building the capacity of UNOC in this business.
In essence, the amendment will create a monopoly over the importation and supply of petroleum products in Uganda.
Competition law considerations
Parliament recently passed the Competition Act, 2023 which is currently awaiting Presidential assent to come into force. The Competition Act seeks to promote and sustain fair competition in Uganda and it prohibits anti-competitive agreements which have an adverse effect on competition in the market. In determining whether an agreement has an adverse effect on competition, a number of things shall be taken into account including:
- Whether the agreement will result in forcing existing competitors out of the market;
- Create barriers to entry; or
- Whether it will result in any consumer benefit or pro-competitive impact.
Whether or not the Bill and the contract between UNOC and Vitol will have an adverse effect on competition or whether it will have a pro-competitive impact is a matter of speculation for now. It is, however, difficult to reconcile the Government’s intentions when it comes to promoting fair competition in Uganda. On one hand, a Competition Act is passed with the objective of promoting and sustaining fair competition in markets and on the other hand, a Bill is introduced to create a monopoly in a key sector in the market. It hardly seems consistent for the Government to pass a Competition Act and thereafter create a monopoly and enter into an agreement that may be construed as having an adverse effect on competition.
Promoting fair competition extends beyond simply enacting a law, it is also exhibited through the forms of intervention that the Government makes into the economy. Interventions such as the Petroleum Supply (Amendment) Bill seek to create a monopoly in the market and raise concerns about whether Uganda will have an effective competition law regime.
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