Parliament recommends for cancellation of oil reserves contract

Parliament has a adopted a report recommending for the termination of contract that the government entered into with Hared Petroleum Limited to manage the fuel reserves at Jinja.

The recommendation was based on a discovery that the company breached the terms of the contract.

The Public Accounts Committee (PAC) in its report to Parliament on the Auditor General’s 2014/15 audit report on the Ministry of Energy and Minerals indicated that Hared Petroleum Limited failed to deliver as per contract terms.

“Given the national strategic importance of this facility, and considering the failure by the operator, the Government should repossess the management and operation of the facility,” PAC chairperson, Angeline Osegge told Parliament.

Government and Hared Petroleum Limited entered into a concessional agreement in 2012 which required the contractor to refurbish, restock maintain and manage the petroleum strategic reserve facility at Jinja.

According to the agreement, the contractor was required to manage the facility for a period of 10 years, with Hared Petroleum committing to build the government reserves within 6 months from the signature date.

The contract agreement was however discovered be having loopholes that Hared Petroleum Limited took advantage of.

For instance, the concession agreement required Hared Petroleum to ensure that 40% approximately (12 million litres) of the storage capacity of the products is available at all times as a strategic reserve which is released whenever there is a national petroleum supply shortfall but the contractor failed to fulfill this requirement.

The Auditor General, John Muwanga in his report indicated that at the time of inspection in September 2O15, there were only 274,000 litres of petrol and 331,000 litres of diesel in stock, an indication that the tanks had never had the 40% strategic reserves at any one time.

“From the above analysis it is evident that stock build up is not being achieved and consequently the national petroleum reserves are not serving the purpose for which they were established,” the audit report read in part.

The Ministry of Energy and Mineral Development’s defended Hared Petroleum on arguments that its ability had been constrained by unforeseen increased level of investment in the refurbishment that doubled and the challenges associated with the supply route of Mombasa.