Kenya averted a pile-up of fuel volumes in the wake of Uganda’s decision to directly buy the commodity after renegotiating the government-backed importation by three Gulf oil majors.
Daniel Kiptoo, the director-general of the Energy and Petroleum Regulatory Authority (Epra), said Kenya negotiated for flexible monthly imports when the country agreed to extend the deal by a year to the end of 2024.
Uganda is expected to start directly buying fuel from Vitol Bahrain from July in a move that had triggered fears that Kenya will be stuck with extra fuel volumes monthly.
Without the clause to import in flexible quotas, the three oil firms tapped to import fuel would have faced pile-ups of Super petrol, diesel and jet fuel.
Kenya would have been compelled to pay off the Gulf majors to avert extra shipping compensation that would have been passed on to consumers, leading to higher prices.
“We negotiated away from fixed monthly volumes to flexible volumes over the contract term when we did the addendum that extended Government to Government deal,” Mr Kiptoo said.
“There are no extra volumes, we are contractually bound as a country and we will honour our obligations.”
Kenya, through three local oil firms, had negotiated for fixed fuel quotas of 85,000 tonnes of diesel, 80, 000 tonnes of Super petrol and 80,000 tonnes of jet fuel per cargo. The volumes included those for Uganda.
Galana, Gulf Oil and Asharami & One Petroleum are the three local firms tapped by Saudi Aramco, Emirates National Oil Company (Enoc) and Abu Dhabi National Oil Company (Adnoc) to import the cargo.
Asharami & One Petroleum replaced Oryx Energies Limited which was dropped by Saudi Aramco in December last year.
Kenya signed the deal to import fuel on a credit period of 180 days in March 2022 as the country sought to alleviate a then-biting shortage of the dollar that had seen the shilling dropping steadily.
But while the deal helped to prop up the shilling by taking away an estimated monthly demand of $500 million to pay for fuel, it led to a fallout with Uganda.
Uganda accused Kenya of a lack of consultations while inking the deal with the Gulf majors in addition to middlemen in the importation of fuel as the neighbouring nation set in motion a plan to buy directly.
The deal between Kenya and the three Gulf firms was initially meant to last for nine months from March 2023 but was extended to the end of 2024.
In exchange for Kenya's agreement to extend the deal, the Gulf oil majors agreed to lower premiums charged on the three grades of fuel.
The Gulf oil firms lowered the premiums for Super petrol to $90 from $97.5 while those for diesel were cut to $88 from $118. Premiums for jet fuel were slashed to $111.75 from $114.25.
The initial premiums had been blamed for being a significant contributor to the high pump prices last year when fuel costs breached Sh200 per litre for the first time in Kenya’s history.
Uganda was in the meantime pushing for legal changes that would allow the Uganda National Oil Company (Unoc) to start direct imports, ending decades of reliance on Kenyan oil firms.
The Yoweri Museveni administration in September last year adopted legal changes even as Kenya delayed granting Unoc access to KPC’s facilities.
“When we got the licence it was late for the product of April to come through the Unoc arrangement, even with May we could not do that. We shall now place orders for June,” Uganda’s minister of Energy, Ruth Nankabirwa, said.
Uganda is the single largest market for transit fuel with the country’s annual needs estimated at 2.5 billion litres of petroleum valued at $2 billion, with Kenya Pipeline Company (KPC) handling at least 90 percent of the cargo.
Ms Nankabirwa added that fuel delivered under the Unoc deal will be cheaper than supplies by the Kenyan oil firms. “Nothing has changed so far in terms of the allocations, we are shortly planning for May cargoes and from the look of things, the earliest Uganda can start doing their direct imports is from July from the look of things,” said an oil executive who sought anonymity.
“We have things like ullage allocation and line-fills that take time.”
Line fill is the minimum volume of fuel needed to occupy the physical space of a pipeline for its efficient flow while ullage refers to the empty air space in a tank or pipeline to allow for the fuel to expand.
Epra licensed Unoc last month, setting the stage for it to start buying fuel from Vitol Bahrain directly.
Uganda took Kenya to the Regional Court of Justice in December last year amid the licensing delays. But talks between President William Ruto and his Ugandan counterpart helped to unlock the stalemate.
But in a move aimed at protecting KPC and local oil firms, Unoc’s licence restricts its fuel to the Ugandan market, safeguarding the regional market for the Kenyan oil firms.
“The licence shall be for the importation and exportation (transit) of refined petroleum products in Uganda only,” the document reads.
