Kenya lobbies Uganda to stick with Mombasa for petroluem imports


Boda boda operators queue as they await their turn to be served by an attendant at a petrol station in Uganda’s capital Kampala, on January 18, 2022. FILE PHOTO | AFP

Kenya is lobbying Uganda to continue using the port of Mombasa to import fuel when the neighbouring country starts direct purchases of petroleum products this month.

Uganda's Ministry of Energy and Mineral Development confirmed that high-level talks between the two countries took place in November amid mounting fears that Kampala will drop the port of Mombasa in favour of the port of Dar es Salaam to handle fuel imports.

Uganda, through Uganda National Oil Company (Unoc) will start directly buying fuel from Vitol Bahrain and had said that it would use the Dar es Salaam Port, after falling out with Kenya.

Kenya declined a request to have Unoc register as an oil marketing company locally in order to use Kenya Pipeline Company (KPC)’s network for handling and transporting fuel headed to Uganda.

The impasse between the countries prompted Uganda to hold talks with Tanzania over the use of the port of Dar es Salaam, a shift that would have hit KPC's revenues besides denying Kenya tax collections.

"In response to your inquiry about the recent discussions between officials from Kenya's Ministry of Energy and their counterparts in Kampala, I would like to inform you that the situation is still evolving,” the Ugandan Energy Ministry said in an emailed response.

"Unoc has been authorised under the amended Petroleum Supply Act to source and distribute petroleum products to all licensed oil marketing companies in Uganda, starting from January 1, 2024. This new mandate includes maintaining and optimising the existing oil supply routes, both through Kenya and Tanzania,” the Ugandan Ministry of Energy added.

A shift to the port of Dar es Salaam will significantly hurt KPC's revenues given that Uganda is the single biggest market for the transit fuel imported through Kenya.

Such a move will also deny Kenya Revenue Authority taxes that it collects from management fees that local oil firms charge their Ugandan counterparts for handling transit fuel.

KPC had early this year warned of the huge losses should Tanzania edge out Kenya in handling imported fuel for Uganda and other landlocked countries.

The firm makes Sh2.6 billion on average per month with transit volumes accounting for 51 percent of this revenue.

Uganda imports an average of 2.5 billion litres of petroleum annually valued at $2 billion (Sh314 billion), with KPC handling at least 90 percent of the cargo.

Fears that Ugandan fuel would clog the KPC network at the expense of fuel for the local market and the lack of Unoc's filling stations in Kenya were cited as some of the reasons for the decision to deny the Ugandan firm from accessing KPC's lines.

A decision by Uganda to drop the port of Mombasa would have been the last blow to Kenya's transit fuel business, months after the two countries fell out.

The two fell out after Uganda accused Kenya of not making consultations prior to signing a fuel supply agreement with three Gulf oil majors, adding the deal led to high pump prices in Uganda as Kenyan middlemen made a killing.

President Yoweri Museveni alleged that pump prices in Kampala were inflated by up to 59 percent in the wake of the deal that Kenya signed with Saudi Aramco, Abu Dhabi National Oil Corporation and Emirates National Oil Company.

A litre of super petrol is currently going for $1.44 in Uganda compared to $1.35 in Kenya while a litre of diesel is retailing at $1.38 in Kampala compared to $1.28 in Nairobi.

Uganda has the costliest fuel in the region and bets that directly buying the commodity will help lower prices.

Kenya said it signed the deal with the three Gulf oil majors in a bid to stem the huge demand for dollars every month and help prop up the wobbling shilling.

Uganda’s decision to directly buy fuel is also set to affect the ease at which Kenya has been getting dollars to pay for the fuel, given that all transit fuel is paid for using the greenback.

Unoc will also get working capital from Vitol Bahrain under the five-year deal that was signed and cemented through changes in Uganda's legislation, ending decades of reliance on Kenyan fuel import structures.

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