The government of Uganda is in the final stages of granting monopoly rights to Switzerland-based Dutch energy and commodities trading firm, Vitol Inc, to supply all petroleum products to Uganda in a deal that was neither advertised or subjected to open bidding processes.
More so, Vitol, which is considered the largest oil trading company in the world, was in December 2020 fined $ 135m by the United States after a federal investigation showed that for over 15 years, the company paid “millions of dollars in bribes to numerous public officials – in three separate countries (Brazil, Ecuador and Mexico) – to obtain improper competitive advantages that resulted in significant illicit profits for the company.”
The multi-billion-dollar deal was reportedly brokered by the elusive Kampala lobbyist, Abu Mukasa.
Drama started unfolding on Thursday after Energy Minister Ruth Nankabirwa told Parliament that her docket planned to amend the Petroleum Supply Act to “support Uganda National Oil Company (UNOC)” to supply petroleum products to all oil companies operating in Uganda.
“Effective January 2024, the oil marketing companies will be directly supplied by UNOC which will improve security of supply and result in competitive prices,” said Nankabirwa.
ChimpReports has learned that the Ministry of Energy will later this year sign an agreement with Vitol Bahrain, a subsidiary of Vitol, to take over monopoly rights of supplying oil products to UNOC.
This arrangement will work in a way that Vitol will source for and supply UNOC all petroleum products needed in the Ugandan market. UNOC will in turn sell these products to private oil marketing companies such as Total Energies, Starbex, and Vivvo among others, for margins.
Government hopes that these margins will help UNOC fund itself and its other commercial activities.
However, the viability of this arrangement has been questioned with insiders saying granting monopoly rights to a Dutch firm would undermine the country’s sovereignty and raise serious risks to the economy if the company reneges or fails to deliver required petroleum products in the country.
It would also deny Ugandan consumers advantages that come with competition such as good pump prices and foreign direct investment.
Vitol, a Dutch company, is also a front of Vivvo, which is already operating in Uganda.
In 2011, Vitol and Helios Investment Partners purchased the majority of Shell’s (now Vivvo) shareholding in most of their downstream businesses in Africa for a total consideration of $1 billion. Under the agreements, Vitol would supply Vivvo’s existing oil products, distribution and retailing businesses in 14 African countries including Uganda.
Scandal unfolds
It all started on March 22, 2023 with Nankabirwa writing to UNOC Chief Executive Officer, Proscovia Nabbanja, saying she had received a directive from President Museveni ordering the Ministry “to work through UNOC to expeditiously replace the Kenya Open Tender System (OTS) under which, Ugandan Oil Marketing Companies (OMCs) have been importing petroleum products into the country.”
Initially operated by the Kenyan Government, the OTS system ran as a monthly global tender that attracted all top global suppliers of oil products to compete.
The lowest bidder would supply oil products to Kenya, Uganda, Eastern DRC, Rwanda and South Sudan for a period of 30 days, hence facilitating competition and better pump prices.
Tanzania later adopted a similar approach known as BPS to enable competitive prices of petroleum products for its market.
The President, in his letter dated February 27, 2023, further directed that the Ministry of Energy makes the relevant policy changes to allow UNOC to scale up its petroleum business to enable them to handle all the imports of petroleum products into the country on behalf of the oil marketers for the benefit of all Ugandans.
“The government must deliberately support and facilitate UNOC to continue developing the petroleum products trading business with its existing strategic supply partners/refiners from whom it can tap financial and technical capabilities alongside advancing opportunities for knowledge and skill transfer to its staff,” said Museveni in his letter exclusively seen by ChimpReports.
Museveni-UNOC meeting
On March 30, 2023, UNOC boss, Proscovia Nabbanja wrote to the organisation’s board of directors, saying in the meeting held on March 24, 2023, between President Museveni, Nankabirwa and UNOC’s top management, “guidance was provided that the existing supply partner for UNOC to implement and operationalize the Directive, will be Vitol.”
This implies that Vitol did not go through any open bidding process to acquire the monopoly rights to supply fuel to Uganda.
Additionally, the Ugandan government did not conduct any due diligence to satisfy itself that Vitol had executed a similar arrangement with any country in the world.
According to official records submitted to Parliament, Vitol was procured by UNOC to supply 8 million litres of fuel to Uganda in the run-up to the 2022 general elections in Kenya.
Interestingly, Vitol took a staggering 8 weeks to deliver the fuel. The amount of fuel delivered was less than what was paid for, leaving all other commercial risks to UNOC.
The Tanzanian government also recently rejected petroleum products supplied by Vitol, saying they did not meet the government’s specifications.
Nevertheless, Proscovia Nabbanja, in her defence of the Dutch company, told the UNOC board that Vitol is the “world’s largest Oil Trading Company, with a daily fleet of 250 tankers on the high-seas and trading 7 – 8 Million barrels of Oil equivalent per day.”
She also disclosed that President Museveni “further guided that through the ministry responsible for petroleum affairs in Uganda, the government must strengthen its role in the import and supply of petroleum products by mandating UNOC to be the exclusive importer of petroleum products into the country.”
The President also reiterated the additional financial benefit to UNOC, where new revenues will be earned through participation in the importation supply chain.
To Museveni, “these new revenues will reduce UNOC’s reliance on the National Treasury for funding for such crucial projects like the Kampala Storage Terminal, EACOP, and the proposed oil refinery, among others.”
President Museveni emphasised that one of the reasons for creating UNOC was to help the government improve its products’ stock holding levels within the country and subsequently contribute to the stabilisation of consumer and retail fuel prices.
Nabbanja told the UNOC board that Museveni’s directive was based on the recent developments in neighbouring Kenya where on the 13th March 2023, the Kenyan government announced a new supply system for their petroleum products needs which essentially ended the Open Tender System.
Nabbanja said Uganda was neither consulted nor involved in these changes in Kenya and the oil marketing companies in Uganda were asking for guidance from the Ministry following this new development.
“This uncertainty has exacerbated an already precarious situation which further necessitates the need for timely intervention through the Ministry and UNOC,” said Nabbanja.
Risks
Experts say while President Museveni’s idea of exiting Kenya’s trading system is good to enable Uganda control its fuel supplies, they argue that implementing it via Vitol is extremely dangerous for the country’s sovereignty.
There are concerns that officials who worked on the Vitol-UNOC contract could be helping the Dutch firm headquartered in Switzerland to facilitate the new monopoly agreement.
For example, the 5-year contract for the supply of all petroleum products will require a 12-months’ notice from Uganda. This leaves Uganda little room to intervene in case Vitol reneges or breaches its terms of the contract.
Uganda is a net petroleum products importer, with an average shipment of Shs3.2 trillion since 2015. This means the 5-year Uganda-Vitol deal is worth over Shs 16tn.
Sources said Ugandan officials have a low bargaining power with the multinational entity.
It is unlikely that Ugandan officials will compel Vitol to set aside millions of dollars in an escrow account for Uganda to buy petroleum products from the open market if the company fails or delays to deliver expected amounts of fuel in the country.
Secondly, Vitol is not being compelled to store large quantities of reserve petroleum products to last the economy at least 30 days in cases of emergencies such as global conflicts or pandemics.
The capitalist multinational corporation would not allow the Ugandan government to hold its capital in petroleum stock stored in Uganda.
Lastly, the monopoly rights being granted to Vitol border on neo-colonialism as a company seated in Switzerland will determine fuel supply in Uganda.
“We have reached a level where companies in Europe will have the entire Ugandan economy by the balls,” said a Ugandan official, adding, “What would happen if Vitol got issues and failed to deliver fuel to Uganda? What would be the impact on the economy? Why doesn’t the government want other companies to compete with Vitol?”
Corruption
Hidden from view by operating behind the Shell and Puma Energy brands, two big Swiss trading companies Vitol and Trafigura, together with smaller Swiss companies, have a dominant position in the import and distribution of petroleum products in many African countries, especially in West Africa.
In Zambia, diesel imported by Vitol was off specification on sulphur when trucks were tested.
According to an investigation by a research and advocacy group, Public Eye, intermediate products contain high levels of sulphur as well as other toxic substances such as benzene and aromatics.
By selling such fuels at the pump in Africa, the traders increase outdoor air pollution, causing respiratory disease and premature death.
In Tanzania, Vitol imported with a cartel and inflated delivered premiums vs neighbouring markets. This cost retailers millions in lost earnings.
In Bangladesh, during the gas crisis and high gas prices, Vitol reportedly flaked on government supply, pocketing over 1 billion USD.
Bangladesh was forced to find alternative supply to ensure 160 million people had power, but it cost the government billions of dollars.
In 2020, the U.S. fined Vitol for market price manipulation on fuel imports for California.
Vitol agreed to pay $95.7 million to settle charges of corruption-based fraud and attempted market manipulation, according to Reuters.
Vitol did not admit or deny the charges, but agreed to pay the civil penalties related to making bribes and offering kickbacks to employees of certain state-owned entities in Brazil, Ecuador and Mexico in exchange for “preferential treatment and access to trades.”
The post EXCLUSIVE: Uganda to Give Corrupt Dutch Conglomerate, Vitol, Shs 16tn Fuel Supply Monopoly Deal first appeared on ChimpReports.
