Fuel Importation: Weighing potential crisis against expensive Tanzanian route

by Christopher Kiiza
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Uganda imports its petroleum with over 90% through Mombasa port in Kenya supplemented by small imports via Dar es Salaam port in Tanzania.

However, this is on the verge of changing because last year, Uganda amended the Petroleum Supply Act 2008 to empower the country’s only oil company, Uganda National Oil Company (UNOC) with monopoly rights to import and supply all petroleum products to Uganda.

Government said the move aimed to increase security and efficiency of supply of petroleum products and eliminate middlemen.

Uganda then entered into a multi-billion-dollar agreement with a foreign firm, Vitol Bahrain to source and supply UNOC with its entire fuel needs for the country’s consumption. The deal between Uganda and Vitol gives monopoly rights to the latter to source and import fuel from the refineries overseas for UNOC up to delivery points in Kenya and Tanzania.

UNOC would then import these petroleum products to Uganda and sell them to private marketing companies such as Vivo (Shell), Total Energies, Stabex among others.

This meant that Uganda would stop buying fuel from Kenyan firms effective January 1, 2024.

However, Uganda is a landlocked country which means that UNOC must use the Kenyan pipeline to import petroleum.

As per the Kenyan law, UNOC applied for a license in Kenya to establish itself as an oil marketing company to enable it import fuel through the Kenyan pipeline.

Kenya, through the Ministry of Energy, and the Energy and Petroleum Regulatory Authority (EPRA) issued a raft of requirements that UNOC needed to comply with in order to get the licence.

The requirements included; proof of annual sales of 6.6 million litres of super petrol, diesel and kerosene, and registering a branch in Kenya to comply with regulations regarding importation of petroleum products.

Other requirements included; ownership of a licensed petroleum depot and at least five retail stations locally, and achieving a minimum annual turnover of $10 million for the last three years.

UNOC could not substantiate the requisite annual sales volumes of 6.6 million litres of either super petrol, diesel, and kerosene in Kenya.

Additionally, UNOC could not provide evidence of operating five licensed retail stations in Kenya, operating a licensed depot in Kenya, or achieving a minimum annual turnover of $10 million for the last three years, which is a requirement for applicants with operations outside Kenya.

However, UNOC complied with the requirement of registering a branch in Kenya.

EPRA turned down UNOC’s application for a license saying that the latter did not meet most of the requirements.

Kenya’s denial of a license to UNOC led Uganda to pursue resolution at the East African Court of Justice (EACJ). Uganda seeks the EACJ’s intervention to compel Kenya into granting the license to UNOC, arguing that the conditions set by EPRA for obtaining the license are deemed unnecessary obstacles.

The final ruling of the court case was expected to be made on January 22, 2024 but was deferred to February 12, 2024.

Kenya’s refusal to issue a license to UNOC, and the subsequent filing of case by Uganda at the EACJ has delayed UNOC’s objective to import fuel for Uganda effective January 1, 2024.

“We are in court not because we wanted but because the government’s only oil company (UNOC) was denied a certificate which they are supposed to get from EPRA (Energy and Petroleum Regulatory Authority) of Kenya,” says the Minister of Energy and Mineral Development, Ruth Nankabirwa.

“UNOC was set to commence the importation of fuel in January 2024, but due to the court suit which is challenging UNOC’s application for a license to transport fuel products in Kenya, this has not been achieved but we are pursuing. And the government of Uganda escalated the dispute to the East African Court of Justice where a ruling is expected,” she adds.

Is Uganda Heading to a Fuel Crisis

It is now close to a month since UNOC was supposed to begin importing all fuel needs for Uganda as it was intended to start on January 1, 2024. 

Nankabirwa says Uganda had an alternative if this did not work out.

“Thanks to our updated petroleum supply emergency plan. We are prepared for any supply crisis ensuring uninterrupted supply in any emergencies,” she says.

She adds: “we have maintained a well-supplied and competitively priced market. To be stable with the supply means a lot. You have not been seeing boda-bodas and taxis lining at the petrol stations. We have made sure that we are wet.”

The “Expensive” Tanzanian Route 

In 2023, Uganda’s petroleum consumption reached a staggering 2.5 billion liters. Of these, 90% was imported through Kenya, and only 10% through Tanzania.

Following Kenya’s refusal to grant an operating license to UNOC, and the subsequent filing of the case by Uganda against Kenya at the EACJ which could potentially be ruled in Kenya’s favor, Uganda is already in talks with Tanzania for an alternative route.

“Is Uganda prepared to have an alternative route? The answer is yes. I have already started engagement with Her Excellency the president of Tanzania [Samia Suluhu Hassan] in an alternative route to make sure that the country is secure in as far as supply of petroleum products is concerned. The Technical Petroleum Committee is fully operational, and is tasked with advising on all matters related to downstream petroleum,” Nankabirwa reveals.

However, the Tanzanian route is more expensive compared to the Kenyan route.

Nankabirwa responds that for fuel security reasons, Uganda must take up the Tanzanian route though expensive, and adds that Uganda cannot just sit and be at the mercy of Kenya. 

“You can’t sit there and be on the mercy of one person. So far, I have met the president of Tanzania. My president (Museveni) sent me as a presidential envoy, and we are in discussions. So, we know that the alternative route might be expensive because of the logistics that are involved but we also know that there is a possibility of a negotiation with the government of Tanzania to wave some taxes so that their sister country (Uganda) can be able to do business,” Nankabirwa says.

She reiterates that the empowerment of UNOC as the sole importer of petroleum to Uganda will ensure security of supply of petroleum products, improve petroleum stockholding levels within the country, and contribute to the competitiveness of the retail pump prices.

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