By Deep Earth
It took the intervention of Kenya President William Ruto to break the deadlock in the negotiations that will see Uganda National Oil Company (UNOC) start direct importation of petroleum products through the Port of Mombasa, using Kenya Pipeline Company (KPC) infrastructure.
Ruth Nankabirwa, the Minister of Energy and Mineral Development (MEMD), said last week that it was after a late meeting with Ruto at State House, Nairobi that the President “summoned his people to make sure that we settle this matter out of court.”
Adding, “As I speak now, a consent letter has been duly signed by the parties. And my team is in Nairobi right now to not only receive the certificate but also to begin scheduling of the vessels so that by May this year we begin seeing UNOC importing petroleum products for the Uganda market.”
Last November, Uganda amended its 2003 law to the Petroleum Supply (Amendment) Act, 2023 to allow the government-owned UNOC to have sole importation and supply rights of all petroleum products meant for the local market.
The Act also aims to eliminate the middleman in the oil supply chain, who is always blamed for raising petroleum pump prices.
The government of Uganda chose this option after Kenya entered an agreement with Gulf countries to import petroleum products on a 180-day credit period to ease dollar demand and prop up its currency.
Uganda, which annually spends about $2 billion importing about 2.5 billion litres of petroleum (90% of the total product it needs) through the KPC and Kenya oil marketing companies, however, objected to this deal, arguing that the product was likely to cost way more than before, going forward.
Subsequently, Uganda chose to start importing fuel directly from Vitol Bahrain, through UNOC. To do so however, UNOC needed to be licensed by Kenya as an oil importer before accessing the KPC system to store and transport its petroleum products from the Port of Mombasa.
However the Energy and Petroleum Regulatory Authority (EPRA) denied it a license on grounds that UNOC failed to prove ownership of a licensed petroleum depot and at least five retail stations in Kenya.
Meanwhile, Royani Energy Limited, Acacia Ridge Construction, and two individuals petitioned the Machakos High Court, asking court to block EPRA from issuing UNOC a permit.
Uganda then petitioned the East African Court of Justice (EACJ), accusing Kenya of placing unrealistic restrictions on it.
But with the Machakos case withdrawn, as per a March 22 ruling (which said, “The undersigned parties wish to record a consent as follows, that the petition is hereby withdrawn,”) Uganda’s case at the EACJ is also likely to end before being determined by the court.
Davis Chirchir, Kenya’s Energy Cabinet Secretary, told Business Daily that work was now in progress to issue a permit that will allow UNOC to import fuel directly through KPC.
“They will employ KPC’s infrastructure so there will be no loss of opportunity, the transporter will remain KPC. We are working closely with Uganda to resolve the challenge.”
Initially planning to start direct importation in January this year, UNOC will now hope to get the EPRA permit later this month, and start importing in product in May.
Tanzania
As a short-term solution, UNOC had turned to Tanzania after the denied permit, offering cargo supplied by Vito Bahrain through the port of Dar es Salaam to oil firms in Tanzania and Uganda.
Nankabirwa said the Tanzania route will stay on the cards as it gives Uganda “security assurances.”
“We don’t want to be boxed in a corner. President Samia Suluhu has been supportive. We will continue discussing with her team to make sure that we make this route commercially viable and competitive,” Nankabirwa said.
To keep logistical expenditures down and therefore the price of the petroleum products as well, Uganda is hoping to get waivers from Tanzania.
Nankabirwa says President Suhulu directed Vitol to carry out a feasibility study on the route. The study will guide what waivers to enact.
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