Govt, private sector partner to boost country’s oil reserves

The government is partnering with private oil dealers in a drive to ensure that the country’s fuel reserve reaches over 150 million litres, which it projects could run the country for about four years. Business Times’ Peterson Tumwebaze examines this ambitious project and also looks at problems facing the local oil industryshortage of fuel and price instabilities could soon be history following efforts by private oil dealers to expand storage facilities. According to Opirah Robert, the head of petroleum unit at Ministry of Trade and Industry, the new storage facilities are expected to hold 35 million litres of petroleum. Today, all the facilities in the country hold a total of 30 million litres.The facilities being built by different oil dealers would cost about $30m to complete, said Eugene Kayigamba, the vice-president of the Rwanda Fuel Importers Association.“This will help counter fluctuations in fuel prices on the local market, which are mostly caused by the volatility of international prices and insufficient oil reserves,” Opirah said. He noted that bigger fuel reserves were essential to ensure the country has enough fuel to supply the market and stabilise pump prices. He, however, noted that the high transport fees from Mombasa and Dar es Salaam ports would continue to cause fluctuation in fuel prices if more facilities were not built. “Increasing the capacity of oil reserves should have been done yesterday. This is the only way to mitigate the challenge of decline in commercial stocks, leading to prices hikes. It is also a business opportunity since we are a transit route to some of the neighbouring countries,” Kayigamba said.Currently, total fuel storage capacity is split between the government and the five oil dealers with depots at Gatsata in Kigali, Kabuye, Rwabuye in the Southern Province and Kigali International Airport, Kanombe. The government reserves at Rwabuye store about 3.6 million litres and five million litres at the Bigogwe facility.The government targets to have at least 150 million litres by 2017, which it projects could run th ecountry for about four years in case the supply chain is interrupted for a long period, Opirah revealed. The government has been encouraging private investors to build fuel storage facilities to boost the country’s oil reserves. So far, Oilcom, Abbarci Petroleum Marketing Company (ABBARCI), ORYX Petroleum, PROTEK and Mount Meru Petroleum Rwanda have already started building new oil storage facilities. According to Opirah, work on the different projects is expected to be completed by 2017, which will accommodate the increasing fuel demand in the country.“We encouraged the private sector to spearhead the construction of the facilities because we believe it is one way of empowering them,” Opirah said.On average, the country consumes 205 million litres of fuel annually with an average consumption of 17-20 million litres per month, according to statistics from the trade ministry. The Rwanda Utilities Regulatory Agency (RURA) indicates that the use of petroleum products is expected to grow at an annual average rate of 10.1 per cent.It costs between $200 (about Rwf130,000) to transport a cubic metre of oil from Dar es Salaam port to Kigali. This fee represents about 13 per cent on the final cost of fuel at pump stations, according to Opirah. Other challenges Kayigamba said the unpredictable international oil market was a big challenge for the local industry. He noted that the market was regulated to preserve the macro-economic equilibrium.Because Rwanda is a landlocked country, this presents challenges as ‘we do not have control over the supply chain’.“We have to maintain adequate commercial stocks, yet we do not control the supply chain. That is why we get supplies through both the northern and the central corridors.Kayigamba noted that delays along the Northern (Mombasa-Kigali) and Southern (Dar – Kigali) corridors contribute to some of these costs. “Although the demand for fuel products is always growing, inefficiencies in the supply chain sometimes cause shortages, leading to an increase in fuel prices,” Kayigamba added.According to statistics from the oil department, demand for petroleum products, including diesel, kerosene, petrol, heavy oil and premium motor spirit, is on the rise.Total consumption increased from 209.6 million litres in 2006 to 211.6 million litres in 2007. With the increasing number of vehicles and industries in the country, consumption of petrol products, especially heavy oil, rose from 204.8 million litres in 2008 to 205.9 million litres in 2010. Silas Lwakabamba, the Infrastructure Minister, said recently that government spends about $1.5m (about Rwf990m) on diesel imports per year.Recently, Presidents Paul Kagame of Rwanda, Uhuru Kenyatta of Kenya and Uganda’s Yoweri Museveni agreed to construct an oil pipeline from Eldoret in Kenya through Uganda to Kigali to ease the problems.According to Sam Kutesa, Uganda’s foreign minister, the oil pipeline would bypass the long and expensive Mombasa and Dar-es-Salaam routes. “It was agreed that we extend the pipeline from Eldoret to Kampala and Rwanda. “The pipeline will be configured with a reverse mechanism so that when we start producing oil it can pump the products backwards,” Kutesa told journalists in Kampala recently.The three states also agreed to revamp an existing railway network and extend it to Rwanda, which according to Kayigamba, could reduce transport charges and also stabilise petroleum products prices. But the struggle is still on as the country waits for new oil storage facilities to be commissioned.