Uganda will from January 1, 2024 stop buying fuel from Kenyan firms after it entered into an agreement with a foreign firm, Vitol Bahrain to supply Uganda with its entire fuel needs.
The arrangement will work in a way that Vitol Bahrain will source for and supply Uganda’s state owned company, Uganda National Oil Company (UNOC) all petroleum products needed in the Ugandan market. UNOC will in turn sell these products to private oil marketing companies such as Vivo (Shell), Total Energies, Stabex among others.
The agreement gives monopoly rights to Vitol to import fuel from overseas for UNOC up to delivery points in Kenya and Tanzania.
UNOC can then settle payments for imports after receiving funds from the oil marketing companies, giving it (UNOC) monopoly rights to supply this fuel to oil marketing companies.
Since Uganda is a landlocked country that imports 90% of its petroleum products from Kenya, UNOC applied for a license in Kenya to be recognized as an oil marketing company to directly import fuel using the Kenya Pipeline.
Such recognition would grant UNOC the ability to participate in fuel import and export, utilizing the infrastructure of the Kenya Pipeline Company (KPC), similar to other Oil Marketing Companies.
However, Kenya’s Energy and Petroleum Regulatory Authority (EPRA) turned down the application saying that UNOC did not meet most of the criteria.
Kenya expressed concern that the move would displace local oil marketing companies (OMCs) from using the pipeline.
Additionally, UNOC could not substantiate the requisite annual sales volumes of 6.6 million litres of either super petrol, automotive gasoil (diesel), and/or jet A1/kerosene in Kenya.
Another reason was that 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.
Uganda’s Next Move
Since UNOC failed to meet EPRA’s criteria for obtaining the essential license to operate as an oil importer, President Museveni in mid-October dispatched the Minister of Energy and Mineral Development, Ruth Nankabirwa as a special envoy to Nairobi to seek waivers from President William Ruto for the necessary approvals.
UNOC has since registered a branch in Kenya to comply with regulations regarding importation of petroleum products.
“A certificate of incorporation issued in the country of incorporation, in this case Uganda, is what is used to register a branch in another country. This is common practice for businesses operating across countries,” said Sarah Birungi Banage, the Head of Corporate Affairs at UNOC.
Accordingly, UNOC’s shareholders and Board of Directors remain the same with operations’ oversight in Uganda and Kenya.
“The Kenya branch is in connection with the Government’s strategic decision to enhance its involvement in ensuring security of the supply of petroleum products by mandating UNOC to source and supply the petroleum products to the licensed oil marketing companies.”
The decision necessitated the amendment of the Petroleum Supply Act, 2003 through the Petroleum Supply (Amendment) Bill, 2023. The Bill has since been tabled before Parliament. Parliament’s Environment & Natural Resources Committee is scrutinising it.
Legislators scrutinising the law have questioned UNOC’s capacity to solely import petroleum products in Uganda.
Birungi, in response said, “UNOC reaffirms its commitment to transparency, adherence to laws, and regulations, all while safeguarding the State’s commercial interests in the oil and gas sub-sector.”
Currently, discussions continue between the two nations with the aim of finding an amicable solution. Whether Kenya will provide concessions to UNOC for utilizing KPC’s facilities to transport its fuel remains uncertain.
Uganda is meanwhile working urgently to finalize amendments to the petroleum supplies law before the year concludes. If passed by Parliament and assented to by President Museveni, these changes will give effect to the agreement between UNOC and Vitol.