Aug 19, 2011 Abstract from a presentation by Hon. Eng. Irene Muloni (MP), Minister of Energy and Mineral Development
The LPG industry in Uganda is still at infancy stages and Government is pursuing measures to mitigate the challenges. Investment opportunities are thus available and the regulatory framework offers a conducive environment. I therefore invite all interested parties to come and invest in Uganda.
Supply and Market Conditions of Liquefied Petroleum Gas (LPG) in Uganda
Uganda is a landlocked country and currently a net importer of all petroleum products. The products, including Liquefied Petroleum Gas (LPG), are imported via Mombasa or Dar-es Salaam port.
Of recent, the ongoing oil exploration activities in the country have yielded significant commercial oil and gas discoveries. In line with the overall policy framework of value addition, there are plans to develop an inland oil refinery. A feasibility study in this respect was done and the phase of promoting the refinery development under Private Public Partnership (PPP) arrangement will soon commence.
Currently the country faces power deficit leading to load-shedding and hence the need for urgent solution to address the energy deficit. The Government views LPG as one of the alternative to alleviate this problem.
According to the Energy Balance of Uganda, 2010, biomass contributes 90% of the energy requirements. LPG contributes less than 1%.
Of the oil marketing companies dealing in white products in Uganda, slightly over 10 are dealing in LPG.
- In Uganda, the downstream petroleum subsector covers matters related to importation, exportation, transportation, processing, supply, storage, distribution and marketing of petroleum products.
- This subsector was liberalized in 1994 and as such, prices are determined by the market forces of demand and supply without government intervention.
- The regulatory framework for the downstream petroleum subsector in Uganda is comprised of:
- The Energy Policy of Uganda, 2002;
- The Petroleum Supply Act, 2003;
- The Petroleum Supply (General) Regulations, 2009; and
- The Petroleum (Marking and Quality Control) Regulations, 2009
- This therefore establishes regulatory authority to licence and control petroleum products supply activities and installations for the safety and protection of public health and the environment.
- In this respect, fair competition is encouraged and protected.
In 2008, the Ministry of Energy and Mineral Development commissioned a study, entitled LPG Study in Uganda. The report highlights the following as major challenges: ¬
- LPG is still treated as a peripheral product by the oil business community in comparison to the other “white products” in the market.
- Start up costs from the point of view of consumers and investors are very high thus limiting the number of investors and consumers. The initial requirements include purchase of a cylinder and other accessories
- Few companies are dealing in LPG hence the market tends to be oligopolistic.
- The market for LPG gas has a slow rate of growth in the region market of usage levels less than 1%. This consumption levels is a disincentive for investors.
- Logistical challenges such as lack of sizeable storage facilities, filling plants and transport trucks for LPG in the country.
- Technical-know-how is still lacking. There are few LPG technicians and no manufacture for cylinders, burners, lighters as well as valves. Such services are out-sourced
- The population perspective on LPG that is a dangerous source of energy has affected the consumption levels of product.
- The “energy poverty situation” demonstrated in Uganda regarding the “energy ladder” has shown that the rural populations income levels have low chances of ever going up the ladder comparing with the urban population.
- Lack of standardized LPG equipments such as cylinders, valves etc. Each company has its own standard hence inter-company re-filling is not permitted.
With these challenges, the government is faced with creating policies that are conducive to switch from traditional fuels to LPG both in rural and urban areas. In this respect, Government is pursuing the following measures to encourage LPG usage: ¬
- Removed taxes on importation of gas so as to reduce the costs and encourage consumption. However; this reduction has hitherto not been passed on to the consumers by the marketing companies albeit a liberalized economy.
- Development of new standards for LPG cylinders and accessories is ongoing and is spearheaded by the Uganda National Bureau of Standards (UNBS). This will go a long way to solve the use of risky cylinders and safeguard the environment. Consideration will be taken to allow switching of cylinders among companies as is practiced in other countries.
- Sensitization to promote LPG usage as clean energy in collaboration with NGOs and other government Agencies. In this respect, annual promotions are undertaken during the Energy Efficiency Week. LPG sellers participate in these promotions where safety issues are emphasized in order to encourage consumption.
- Encouraging organizations promoting the use of LPG. The Uganda Liquefied Petroleum Gas Association (ULPGAS) will be inaugurated in Kampala-Uganda on 8th July 2011.
- Promoting the development of an inland oil refinery. Among others, the refinery will improve the availability of gas in the country for domestic market and export.