Uganda, Kenya reach deal on fuel importation

by Business Times writer
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Uganda and Kenya have signed a tripartite agreement on the importation and transit of petroleum products through the two countries.

The deal was signed on Thursday, May 16, 2024, during President Yoweri Museveni’s State visit to Kenya.

The two neighbors agreed on the importation and transit of refined petroleum products through Kenya to Uganda by Uganda National Oil Company (UNOC) which seeks to ensure the facilitation of the importation and transit of refined petroleum products through Kenya to Uganda.

Kenyan President William Ruto said the agreement will enable Uganda to import refined petroleum commodities directly from the producer countries.

“We have just witnessed this agreement which enables the Uganda National Oil Company Limited to import refined petroleum commodities directly from producer jurisdictions thus bringing to an end the challenges faced by the sector in Uganda,” Ruto said.

“As leaders, we are committed to implementing all our obligations in order for our people and nations to reap the full benefits,” he added.

Uganda had been blocked from getting a license to import oil through Kenya on grounds that UNOC did not meet the minimum requirements set by the Kenyan government.

BACKGROUND

Last year, Uganda amended the Petroleum Supply Act 2008, granting the state-owned Uganda National Oil Company exclusive rights to import and supply all petroleum products in the country. The government stated that the move aimed to enhance the security and efficiency of petroleum supplies and cut out middlemen.

Uganda subsequently signed a multi-billion-dollar agreement with a foreign firm, Vitol Bahrain to source and supply all its fuel needs. This agreement granted Vitol exclusive rights to procure and import fuel from overseas refineries for UNOC, with delivery points in Kenya and Tanzania. UNOC would then import these petroleum products into Uganda and distribute them to private marketing companies such as Vivo (Shell), Total Energies, and Stabex among others.

This change meant that Uganda would cease purchasing fuel from Kenyan firms starting January 1, 2024. However, as a landlocked country, Uganda relies on the Kenyan pipeline for fuel imports. Consequently, UNOC applied for a license in Kenya to operate as an oil marketing company and import fuel through the Kenyan pipeline.

The Kenyan Ministry of Energy and the Energy and Petroleum Regulatory Authority (EPRA) issued several requirements to UNOC to obtain a license. These included proof of annual sales of 6.6 million liters of super petrol, diesel, and kerosene, establishing a branch in Kenya, owning a licensed petroleum depot, operating at least five retail stations locally, and having a minimum annual turnover of $10 million over the last three years.

UNOC could not meet several of these requirements, including the requisite annual sales volumes, operating five licensed retail stations, owning a licensed depot, or achieving the necessary annual turnover. However, it complied with the requirement to register a branch in Kenya.

As a result, EPRA rejected UNOC’s license application, citing the company’s failure to meet most of the specified requirements.

Following Kenya’s refusal to grant an operating license to UNOC, Uganda engaged in talks with Tanzania for an alternative route.

However, the Tanzanian route is more expensive compared to the Kenyan route. The Tanzanian route would be costly for Uganda since the country imports the biggest percentage of its petroleum products through Kenya.

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.

President Museveni defended the Uganda government’s decision last year to halt the purchase of petroleum products from Kenya, arguing that middlemen were inflating prices by up to 59 percent, causing unnecessary hardship for consumers.

He stated that Uganda imports an average of 2.5 billion liters of petroleum annually, worth $2 billion (Ksh 302.34 billion), with a significant portion of the cost attributed to these inflated fees.

Analysts say that the Uganda-Kenya fuel importation agreement will enhance Uganda’s fuel supply by ensuring efficiency, reducing costs and delays, and eliminating middlemen, thereby supporting the broader economic stability and growth of Uganda’s fuel industry.

Uganda is set to begin directly importing fuel next month through an agreement with Vitol Bahrain, aiming to provide more affordable petroleum products. The first shipment of super petrol and diesel from UNOC is expected to arrive between June 18 and 26.

The country has negotiated with Vitol Bahrain to reduce pump prices, which are currently influenced by Kenya’s agreement with three Gulf oil companies.

This move marks the end of Uganda’s decades-long dependency on Kenya for fuel supplies. Ugandan officials believe the Vitol deal will result in lower consumer prices compared to those influenced by Kenya’s government-backed agreement.

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