Kenya fuel imports still in the pipeline
A truck transports petrol. About 90 percent of Uganda’s fuel is provided by Kenya, with the remaining 10 percent sourced through Tanzania. Photo/File
What you need to know:
- Uganda says negotiations are in progress to use Kenya’s pipeline, contrary to reports.
Officials from Kampala and Nairobi are currently immersed in high-stakes negotiations to finalise an agreement facilitating Uganda’s fuel importation through Kenya under a new arrangement.
Despite divergent approaches to fuel importation, both nations are actively working towards a mutually beneficial deal.
Contrary to initial reports suggesting Kenya’s authorities rejected Uganda’s application to utilise Kenya’s pipeline for fuel transportation, Uganda refutes these claims, asserting that negotiations are advancing smoothly.
“Our discussion with Kenya on the bulk trading with Unoc (Uganda National Oil Company) is progressing well. That is my comment on that,” Irene Batebe, the permanent secretary of the Energy ministry, told Monitor.
Daily Nation, our sister publication in Kenya, this week reported that Uganda submitted an application to Kenya’s Energy and Petroleum Regulatory Authority (Epra) to be recognised as an Oil Marketing Company (OMC) in Kenya.
Gains
Such recognition would grant Uganda the ability to engage in the import and export of fuel, utilising the infrastructure of the Kenya Pipeline Company (KPC) like other OMCs.
However, according to the Daily Nation report, Epra rejected Unoc’s application on multiple grounds. Firstly, Unoc purportedly failed to substantiate the required annual sales volumes of 6.6 million litres for super petrol, automotive gas oil (diesel), and/or jet A1/kerosene in Kenya.
Additionally, Unoc couldn’t provide evidence of operating five licensed retail stations and a licensed depot in Kenya, nor could it demonstrate a minimum annual turnover of $10 million (approximately Shs1.51 billion) for the preceding three years—a prerequisite for entities with operations outside Kenya.
Officials from Uganda approached declined to comment on the development, neither confirming nor denying the reports. According to information from Daily Nation, Unoc’s failure to meet Epra’s standards for obtaining a licence as an oil importer prompted Uganda to dispatch a special envoy to Kenya. The envoy sought various waivers on the necessary approvals.
Contract
Starting January 1 next year, Uganda will cease its fuel purchases from Kenyan companies. Instead, the country has secured a five-year contract with Vitol Bahrain EC to exclusively meet its entire fuel requirements.
Presently, approximately 90 percent of Uganda’s fuel is provided by Kenya, with the remaining 10 percent sourced through Tanzania.
Energy minister Ruth Nankabirwa informed Parliament that, despite the Open Tender System’s competitive pricing and consistent supplies, Uganda has at times faced challenges in accessing committed demand volumes due to the Kenyan government prioritising their local company. This has, in turn, resulted in fuel scarcity, leading to frequent increases in fuel prices.
According to the government’s strategy, Vitol Bahrain, a foreign firm, will financially support the supply of petroleum products up to delivery points in Kenya and Tanzania. Under this arrangement, Unoc can settle payments for imports after receiving funds from the OMCs.
With the announcement of a deal between state-owned Unoc and Vitol Bahrain EC, experts had warned that Kenya will give preference to receipt of Kenya’s fuel consignments, which would expose Uganda to periodic risk of security of supply if the country declined to be party to government-to-government (GtG) agreement that is currently between Kenya and Saudi Arabia.
They proposed that Uganda formalise its participation in Kenya’s fuel procurement system instead of going it alone through Unoc and a monopoly supplier or even with multiple suppliers. Authorities in Kampala led by President Museveni have dismissed such suggestions.
Uganda, according to President Museveni, imports 2.5 billion litres of petroleum products per annum valued at about $2b.
Kick out middlemen
Justifying his push to walk away from the Kenyan arrangement, President Museveni said he needs to cut out middlemen.
“Without my knowledge, our wonderful people were buying this huge quantity of petroleum products from middlemen in Kenya. A whole country buying from middlemen in Kenya or anywhere else! Amazing but true,” he revealed in a social media post last week.
Per President Museveni’s analysis, Uganda incurs a “huge loss” before its petroleum products arrive at either the Port of Mombasa in Kenya or in Dar es Salaam, Tanzania.
Diesel through middlemen, Mr Museveni argued, costs $118 yet the price from bulk suppliers or refiners is $83. On the other hand, petrol from middlemen costs $97.5 while the same goes for $61.5 from bulk suppliers or refiners. The trend continues with Kerosene, with middlemen selling it at $114 while bulk suppliers or refiners’ price is $79.
President Museveni and other proponents of the deal argue that buying from refineries abroad and transporting Uganda’s petroleum products through Kenya and Tanzania will cut out the cost created by middlemen hence making Uganda’s fuel products cheaper.
UNOC CHALLENGED
Uganda is in the process of amending the petroleum supply law to reflect the realities of the new fuel importation deal. Legislators scrutinising the law have, however, questioned the capability of Unoc to solely import fuel and gas products in Uganda. Uganda is racing against time to have the amendments to the petroleum supplies law made before the end of the year. The amendments will, if passed by the House and assented to by President Museveni, give effect to the Unoc-Vitol deal. Kenya, according to Energy minister Ruth Nankabirwa, will lock Uganda in a contract for another year if the law is delayed.
