How diesel cargo sparked fresh Kenya-Uganda fallout
From left: Ugandan Energy minister Ruth Nankabirwa, Kenyan Petroleum PS Mohamed Liban and Kenya Ports Authority managing director William Ruto during the reception of Uganda’s first oil consignment shipment on July 3.
An undeclared consignment of 17,000 cubic metres of diesel shipped to Mombasa by Vitol Bahrain on behalf of Uganda triggered the latest standoff between Kampala and Nairobi, official correspondence show, with Kenya reacting by imposing a bond fee on the disputed cargo.
Documents obtained by the Business Daily show that Vitol imported 82,000 cubic metres of diesel under a direct fuel import deal with Kampala — higher than the 65,000 cubic metres that had been declared to Kenyan authorities by the Uganda National Oil Company (Unoc) and approved by the Energy and Petroleum Ministry in Nairobi.
The Kenya Revenue Authority (KRA) initially rejected a request by Vitol Tank Terminal International Kenya (VTTI) to be allowed to offload the Ugandan cargo into its storage facility in Mombasa citing a breach of the conditions set by the Ministry of Energy and Petroleum.
Sources said State House in Nairobi intervened and VTTI was allowed to move the extra load of diesel into its warehouse as it processed additional bond fees.
VTTI General Manager Mark Musembi had in a letter requested KRA Commissioner for Customs and Border Control Lilian Nyawanda to allow the diesel cargo into its bonded customs transits warehouse and assess the size of the bond fee required on the consignment.
“We kindly request that the incoming cargo, approximately 82,000 cubic metres of gasoil (or any other higher volume permitted by the State Department of Petroleum), be received at the Terminal on arrival to avoid any delays,” he said in the July 2,2024 letter.
“This will help mitigate the additional cost of demurrage and ensure efficient use of the jetty. The volume received by the terminal above the volume currently assessed by KRA to be covered by the existing bond shall remain in the terminal pending completion of the two processes or as may be guided by KRA’s resident officer.”
The KRA, however, declined to grant Mr Musembi’s request, saying doing so would be a violation of the terms of the fuel import deal agreed between the two countries as well as the East Africa Community customs regulations.
“Your request to allow discharge of the 82,000 cubic metres of automotive gas oil (AGO) into your facility upon arrival of the vessel despite the limitations occasioned by insufficient bond is against the conditions given in the Ministry of Energy and Petroleum [in a letter] dated June 28, 2024, and is therefore rejected,” KRA acting Commissioner for Customs and Border Control, Kiprono Cole Bullut said in response to VTTI.
“Further, Section 62(1), (4), and (5) of the East Africa Community Customs Management Act 2004 as read together with Regulation 76 of the East Africa Community Customs Management Regulation 2010, which requires the bond in force to cover full the tax liability of any goods stored therein. The appropriate bond security, which would cover the tax liability of 82,000 cubic metres of AGO given the current tax rates, is approximately Sh4.428 billion.”
Mr Bullut further pointed out that VTTI must comply with bond terms because the taxman cannot overrule a pact between Uganda and the Kenyan Ministry of Energy and Petroleum.
“The conditions set out in the letter … from the Ministry cannot be set aside by the Commissioner Customs and Border Control and you are required to comply in full,” he said.
Authorities in Kampala were provoked by KRA’s stand, with Uganda’s minister for Energy and Mineral Resources, Ruth Nankabirwa, sensationally accusing Kenya of derailing its direct fuel import scheme through extra taxation.
“They (Kenya) have increased the bond fee at Vitol terminal where we are offloading our products and when you increase the bond fee to the tune of 40 million dollars, that means you are pushing Unoc to also increase and Ugandans are not likely to see reduced pump prices,” she said in a post on her X (formerly Twitter) handle.
The pronouncements by the Uganda official upset her Kenyan counterparts who were, however, advised against making retaliatory remarks that would further hurt diplomatic ties between the two neighbours.
Mrs Nankabirwa landed in Nairobi early this week to meet Kenyan Energy ministry officials over the issue in last-ditch efforts to avert a major diplomatic falling-out over her comments.
Sources said the meeting was yet to happen as at the time of going to press last evening. Unoc last week received the maiden fuel cargoes under a five-year deal that Uganda inked with Vitol Bahrain. Uganda opted for the deal a year after Kenya signed an agreement with Saudi Aramco, Abu Dhabi National Oil Company, and Emirates National Oil Company for the supply of fuel on credit for 180 days.
The neighbouring country had said that the deal with Vitol Bahrain would help lower pump prices, a promise that has been shattered by unexplained charges that will make fuel in Kampala more expensive than in Nairobi.
