Oil Importation: Why Uganda is suing Kenya

by Christopher Kiiza
0 comment

Uganda has filed a case against Kenya at the East African Court of Justice over Kenya’s refusal to grant a license to Uganda National Oil Company (UNOC) to operate in Kenya, and handle fuel imports to Uganda.

Background

Last year, 2023, Uganda entered into a multi-billion-dollar agreement with a foreign firm, Vitol Bahrain to supply Uganda with its entire fuel needs.

This would be followed by Parliament of Uganda passing the Petroleum Supply (Amendment) Bill, 2023 that amended certain provisions of the Petroleum Supply Act, 2003 by among things empowering the state-owned company, UNOC to import petroleum products for the Ugandan market and contribute to the reduction of the pump price by eliminating unwarranted transactions in the supply chain.

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

The agreement between Uganda and Vitol gives monopoly rights to the latter to import fuel from overseas for UNOC up to delivery points in Kenya and Tanzania.

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

Since Uganda is a landlocked country that depends on Kenya for 90% of its petroleum product imports, UNOC applied for a license in Kenya to establish itself as an oil marketing company, enabling direct fuel imports through the Kenya Pipeline.

This would empower UNOC to engage in both fuel import and export, leveraging the infrastructure of the Kenya Pipeline Company (KPC) just like other Oil Marketing Companies.

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.

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

Requirements Issued by EPRA to UNOC to Get a License

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 to comply with regulations regarding importation of petroleum products.

Uganda Flies a Case at the EACJ

Kenya’s refusal to issue a license to UNOC has prompted Uganda to seek settlement at the regional court, the East African Court of Justice (EACJ).

According to court documents dated December 28, 2023, Uganda wants the East African Court of Justice to compel Kenya to issue the license to UNOC.

Uganda contends that the requirements issued by EPRA to UNOC to get a license are an unnecessary impediment.

“UNOC found the above requirements an unnecessary hindrance to the implementation of its petroleum policy as the petroleum products in issue were wholly transit goods not destined for the Republic of Kenya,” says Ugandan Attorney General, Kiryowa Kiwanuka in the court documents.

Should UNOC be the Sole Importer & Supplier of Petroleum Products in Uganda?

Government contends that the “lack of empowerment” for UNOC to be the sole importer and supplier of Uganda’s of petroleum products has contributed to instability of petroleum products supply in Uganda, unpredictable pump prices, and financial stagnation for UNOC which has “curtailed” its business progress.

Government believes the empowerment of UNOC 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.

Uganda imports 90% of its petroleum products through Kenya, and 10% through Tanzania.

The country has an annual consumption of 2.5 billion litres of petrol, diesel, jet A1, and kerosene with an annual growth of 67%. On average, petrol takes the biggest share of imports , followed by diesel, jet A1, and kerosene.

Petroleum products are purchased by Ugandan companies from Kenya companies which have been operating under the open tender system until April 2023 when Kenya moved from open tender system to government to government dealing directly with countries where they source their petroleum products.

President Museveni has accused Kenyan middlemen of being behind the high pump prices in Kampala even as global prices of the commodity continue to fall.

The Chairperson of the Parliamentary Committee on Environment and Natural Resources, Dr. Emmanuel Otala says that Uganda’s inability to purchase directly from the refineries and lack of direct negotiations with the refineries contributes to high and unpredictable pump prices.

In the same vein, the Report of the Parliamentary Committee on environment and natural resources recommends that “UNOC should be made the sole importer and supplier of petroleum products destined to the Ugandan market for the licensed marketing companies, and thus remove the middlemen.”

However, the same committee notes that UNOC lacks the financial capacity to directly purchase petroleum products from the international refineries, hence the agreement with Vitol that will finance the delivery of petroleum products up to the delivery ports of Kenya and Tanzania.

Need For Multiple Suppliers

“Whereas it is crucial to build the capacity of UNOC in the interim, this should be followed by the Government identifying and entering into partnership with multiple multinational players in the petroleum supply chain as is the case of Kenya,” the Committee on Environment and Natural Resources recommends.

There should be a concern that there might be a transition from the current focus on oil prices to a situation where the discussion shifts towards the availability of oil in the country. That would be even more risky. The undesirability of a monopoly that could potentially disrupt the continuous flow of oil in case Vitol fails to deliver should be a concern.

It, therefore, would be wise if the Government identified other suitable companies to supply UNOC in the long term.

On the matter of elimination of intermediary oil marketing companies, Otala says there is an option of UNOC dealing with refineries directly to eliminate all the middlemen from the supply chain. He says that in the long term, UNOC should explore opportunities for direct engagement with refineries. This minimises costs and increases stability of petroleum products supply into the economy.

You may also like

Leave a Comment

About Us

Business Times Uganda, is a leading Business news website focusing on Finance, Energy, Infrastructure and Technology. 

Feature Posts

Newsletter

Subscribe our newsletter for latest news. Let's stay updated!

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?
error: Content is protected !!