Physical Address
Kampala, Uganda
On 31st October 2023, the Minister of Energy and Mineral Development tabled the Petroleum Supply (Amendment) Bill 2023 (the “Bill”) in Parliament for its first reading. In a statement released by the Ministry, the purpose of the Bill is to guarantee the security of the supply of petroleum products into Uganda by mandating the Uganda National Oil Company (“UNOC”) to source and supply petroleum products to licensed Oil Marketing Companies (“OMCs”) involved in the importation of the products for Uganda.
The statement further noted that UNOC had negotiated a 5-year contract with a partner, Vitol Bahrain E.C, whose role would be to provide a working capital facility and collaborate with UNOC to ensure competitive pricing of petroleum products.
This article considers the competition law aspects of the Bill, in light of the recently passed Competition Bill 2023, which the President declined to assent to. [Previous analysis on the Competition Bill can be found: Here]
Salient Aspects of the Bill
The Bill amends certain aspects of the Petroleum Supply Act, of 2003 and empowers UNOC to be the supplier of all imports to OMCs in Uganda. Clause 29(2) of the Bill provides that the importation of petroleum products destined for the Ugandan market and supply to OMCs shall be undertaken by UNOC, subject to the exceptions provided for in Clause 29(3).
Clause 29(3) provides that the Minister may by statutory instrument nominate any other person, with the approval of Cabinet, to import and supply petroleum products under exceptional circumstances. The exceptional circumstances include a failure by UNOC to supply the products in any given month or in the event UNOC becomes insolvent.
Additionally, Clause 29(5) requires licensed OMCs to purchase all their petroleum product requirements from UNOC or such person nominated by the Minister under the exceptional circumstances.
From the provisions of the Bill, the following deductions may be made:
- The Bill seeks to designate UNOC as the sole importer and supplier of all petroleum products in Uganda;
- All OMCs shall be required, as a matter of law, to purchase their products from UNOC; and
- The Minister, with approval from the Cabinet, may nominate any other person (including companies) to import and supply petroleum products in the event UNOC fails to do so.
Competition Law Considerations of the Bill
In May 2023, Parliament passed the Competition Bill 2023. The President however declined to assent to the Bill on account of the creation of the Competition and Consumer Protection Commission, contrary to government policy on the rationalization of government agencies. [Analysis on this aspect can be found: Here]
The foregoing notwithstanding, it must be noted that the Competition Bill sought to achieve several objectives. The Parliamentary Committee on Trade, Tourism, and Industry (the “Committee”) noted that enacting a competition law would safeguard businesses regardless of their size and ensure smaller enterprises were not edged out by larger ones. The Committee further noted that the law would address the threats to a free market economy and would lead to equal opportunities for all.
To that end, the Committee recommended that the law apply to all economic activities and govern government, state corporations, and local authorities if they engage in trade. It should be recalled that the initial Competition Bill granted a blanket exemption to government entities carrying out sovereign functions.
UNOC was established as a wholly state entity under the Petroleum (Exploration, Development, and Production) Act 2013 and mandated to manage the commercial aspects of Uganda’s petroleum activities, including handling Uganda’s commercial interests in the petroleum sub-sector and managing the business aspects of the State’s participation in the sub-sector.
On this premise, it may be rightly argued that UNOC is engaged in trade on behalf of the State. If that assertion is held to be true, UNOC would be an entity subject to the Competition law regime.
As such, enacting a law that grants UNOC a monopoly in the importation and supply of petroleum products is a direct affront to the objectives sought to be achieved by enacting a competition law. The Bill is in essence doing exactly that which the Competition Bill sought to remediate. It introduces strong barriers to entry into the petroleum trade; forces existing players out of the trade and poses a grave threat to a free petroleum market.
Additionally, the Bill creates an opportunity for the creation of few but extremely dominant petroleum businesses in so far as it grants the Minister power to nominate persons to import and supply petroleum products – in the event UNOC is unable to. As the Committee noted, certain groups may exploit this provision to obtain preferential treatment from the State to the detriment of smaller players. The Bill goes as far as requiring OMCs to purchase all their petroleum products from UNOC, a provision that is manifestly anti-competitive.
Conclusion
The Bill provides the best opportunity for us to test our commitment to enacting an effective competition regime in Uganda. The Bill is a demonstration of the defects the Competition Bill sought to cure. It remains to be seen if Parliament will pass it, and how the two laws, which are diametrically opposed will be reconciled. There are also lingering concerns regarding the capacity and efficiency of UNOC and its partner of choice – Vitol, and the recourse available to existing players who may have made substantial investments in the sub-sector.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
