Museveni bets on Samia to save oil plan

Uganda’s President Yoweri Museveni appears to be running out of patience in the quest for a port of call for the country’s petroleum imports, after political and legal setbacks in Kenya frustrated Kampala’s efforts to use the port of Mombasa and its oil-related infrastructure.

The Ugandan leader has now gone full throttle on plans to make the port of Dar es Salaam an alternative through which to deliver fuel to his landlocked country, with sources in Nairobi indicating that the earlier initiated talks have hit a brick wall.

Uganda is, therefore, looking at a second month without actualising its multimillion-dollar fuel importation deal between state-owned Uganda National Oil Company (Unoc) and Swiss commodity and trading giant Vitol to supply petroleum products to at least 170 oil marketing companies in Uganda.

This week, a technical team was dispatched to Tanzania — the second trip in three weeks — to negotiate the finer details in the delicate petroleum importation deal through Dar es Salaam that Tanzania President Samia Suluhu Hassan offered to potentially beat the Mombasa Port as the preferred route.

According to sources familiar with the matter, the discussions are led by envoys appointed by Presidents Museveni and Samia. The Ugandan envoy met with President Samia first to present “the urgency of the issue that can’t rely on vested interests in Kenya.”

Energy Minister Ruth Nankabirwa told The EastAfrican this week that it was too early to establish the timelines when Unoc can get the green light to land the first fuel cargo in Dar es Salaam, adding that “everything is still under negotiation.”

Technical teams from Kampala and the Tanzanian commercial capital are thrashing out details on tax waivers that Tanzania has proposed to offer, the volumes to be shipped, and the mode of transport.

“There has been one meeting already in Tanzania. The technical team is right now preparing to travel to Tanzania for a second meeting,” she said, expressing frustration about the setbacks in Kenya, which have left Uganda with no choice but to pursue alternative routes as long as they will “ensure security of supply.”

Although Ms Nankabirwa was cagey about how much fuel Kampala plans to bring in through Dar es Salaam, it is understood that one of the issues on the negotiation table is to import about two billion litres of petroleum products through Tanzania, which is about 80 percent Uganda’s consumption.

This, experts say, is a shift from the plan at the outset last year, when the government pushed for the bigger percentage of imports to come through Mombasa, as Dar es Salaam was riddled with multiple infrastructure challenges, including the lack of a refined products oil pipeline and an efficient railway transport system.

“The volumes we import through Tanzania will depend on the [tax] waivers they offer. We cannot talk about volumes now. We are still negotiating,” Ms Nankabirwa told The EastAfrican.

With the bigger percentage of Kampala-bound petroleum products coming through Tanzania, this would swell Uganda’s cargo traffic through the Dar es Salaam port, which currently stands at only two percent of the facility’s throughput, according to Tanzania Ports Authority (TPA).

Although still under discussion, all indications are that Dar es Salaam is offering a better deal, consistent with the incentives and offers it has been giving its new customers, including a 30-day free storage for Ugandan shippers for all imports, and a dedicated goods shed at the port, which can be used as a consolidation and deconsolidation centre any time, TPA deputy director-general Juma Kijavara, said last week.

By contract, Mombasa port offers only 15-days free storage.

The other discussions touch on challenges along the Central Corridor and requirements that need to be in place to facilitate smooth delivery of imports to Uganda, to be worked out by the government of Tanzania on how to optimise infrastructure there.

According to the Ministry of Energy data, Uganda predominantly imports its petroleum — over 90 percent — through Mombasa, supplemented by imports via Dar es Salaam. Last year, the country’s petroleum consumption reached 2.5 billion litres, with a $2 billion import bill.

Mid last year, Uganda’s Cabinet approved a plan that mandated Unoc to directly import fuel into the country, with a view to reducing inefficiencies and do away with what President Museveni described as arrangements in Kenya that were designed to cheat Uganda-based oil companies, leading to high pump prices in the market.

President Museveni said for a long time, officials in his government colluded with cartels in Kenya that purchased from refineries in the Middle East under the Open Tender System and, even when Kenya ditched OTS and switched to a government-to-government (G2G) arrangement with the United Arab Emirates in March 2023, the fuel still came at high premiums and was priced out of Ugandans’ reach.

Dicksons Kateshumbwa, a legislator and former commissioner for Customs at Uganda Revenue Authority, said under the G2G system, Gulf refineries supply all fuel to countries in the region — including Uganda — at premiums of $118 per metric tonne for Automotive Gas Oil and $97.5 per metric tonne for Premium Motor Spirit as opposed to $35 per MT under the OTS.

Kenya negotiated a six-month credit period in which it would get oil and pay the Gulf companies after supply, but forced Ugandan OMCs to pay upfront for petroleum products to cushion Kenya’s forex crunch.

Uganda amended its Petroleum Supply Act to hand Unoc the powers to partner with Vitol and import directly from the Gulf refineries, and the state-owned firm was set to commence the importation in January 2024 but, due to a lawsuit challenging its application for a licence to transport fuel products in Kenya, this was not achieved.

On December 28, 2023, Uganda escalated the dispute to the East Africa Court of Justice, where a ruling is pending, while for the case in Kenya challenging Unoc’s application to run fuel logistics business, a court case in Machakos, on January 22, 2024 deferred its ruling to February 12.

However, the Uganda government drafted a law that would create a sole supplier of all OMCs, knocking out Kenya’s push to maintain its dominance of fuel supply, and authorities in Kampala cannot determine how soon the falling-out over this deal can be resolved to allow Unoc to start importing fuel via Mombasa.

According to Ms Nankabirwa, Kenya’s President William Ruto was in full support of Uganda’s move to import petroleum products from source, until the country’s economic interests became threatened at the expense of regional cooperation.

“I don’t know where all this frustration is coming from,” Ms Nankabirwa told journalists in Kampala.

“The president sent me to meet President Ruto four times and he was so supportive on all the times. Then he sent me, my brother [Petroleum minister Davis] Chirchir, and then some people jumped in court. What do you do if you are sued?”

Meanwhile, the communication channels between Kampala and Nairobi have have collapsed. Sources say that President Ruto is looking for a high-profile envoy to take a message to Museveni. But the Ugandan leader is desperate to salvage his Unoc-Vitol deal, so he may not reverse his decision.

*Written by Julius Barigaba