Kenya set to lose Sh15bn as Uganda changes oil import plan

Last week, the country's Minister for Energy Ruth Nankabirwa tabled a Petroleum Supply (Amendment) Bill 2023 in Parliament to protest what the country termed as supply jeopardy by Kenya, leading to high prices. 

According to the plan, the Uganda National Oil Company (UNOC) will be the sole importer of petroleum and related products, supplied by Vitol Group. It will then sell to private oil marketing companies.

Early this year, Uganda’s President Yoweri Museveni directed the Minister of Energy to have Unoc help the government improve its “products’ stock-holding levels within the country and subsequently contribute to the stabilisation of the consumer and retail fuel prices.”

Even so, the proposal did not specify if the oil would pass through the usual Northern Corridor (Port of Mombasa) or the Port of Dar es Salaam (Central Corridor). 

If Kampala chooses the latter option, Kenya stands to lose close to $100 million (Sh15.3 billion) every year it has been earning to facilitate oil imports to the landlocked nation. 

Currently, most of the fuel to Uganda is supplied by three marketing firms in Kenya, which in turn sell to Uganda’s oil marketing companies.

At least 90 per cent of Uganda’s fuel imports are sourced from Kenya, while 10 per cent comes from Tanzania, but during Kenyan elections, 50 percent of requirements for top OMCs are sourced from the central corridor.

About 40 per cent of the fuel Kenya imports is exported, mostly through Uganda to the Democratic Republic of Congo and South Sudan.

On Friday, Uganda threatened to stop procuring oil through Kenya from January protesting being left out in the government-to-government deal with Gulf nations, a decision it says has made its supplies vulnerable and exposes its citizens to expensive pump prices.

This follows Kenya's government-to-government oil import deal with Saudi Arabia and the United Arab Emirates in March allowing for the importation of fuel on an a 180-day credit period. 

Kenya's new crude oil import plan expected to end next year was meant to cushion the country from foreign exchange volatilities and stabilise rising pump prices.

The Kenyan shilling has significantly dropped against major international currencies in the past 12 months, closing yesterday at 151.35 units against the US dollar.  

Trade experts are divided on Uganda’s decision to cut oil marketing plan with Kenyan firms, with the majority saying it will be costly for Uganda to choose the Dar es Salam route.

Jamleck Limo of Dense Logistics argues that Mombasa still offers Uganada the best import option.

"Uganda has no option but to be nice to Kenya. It is almost twice as costly to import oil to Kampala via the Port of  Dar es Salam than Mombasa,'' Limo said. 

Economist Alfred Omweri shares similar sentiments, saying transport costs will be high if Uganda ignores Kenya. 

"It is extremely costly to import via Dar to Kamplala than Mombasa. It is almost double the cost, hence does not make business sense,'' Omweri said.

It costs $4,800 (Sh720, 000) to ship cargo to Kampala via Dar compared to $2,700 (Sh407, 000) via Mombasa.

President William Ruto's chief economic advisor David Ndii laughed off the threat by Uganda in a tweet, wondering if the landlocked nation will be flying in its crude oil. 

"How will the oil get to Uganda? Will they fly it in?'' he posted on his X page on Thursday. 

Logistics expert Sall Kimeli however says that Dar could be Kampala's option if efficiency is fixed.

She adds that the Standard Gauge Railway link between the two nations if realised will sort the logistics issue.

Tanzania is finalising the 300km Dar-Morogoro line in the first phase of the SGR project, which is expected to run up to Mwanza on the shores of Lake Victoria and Kigoma on the northeastern shores of Lake Tanganyika in five phases. 

There are plans to add connections to Rwanda, Burundi and the Democratic Republic of Congo as part of the East African Railway Master Plan.

The oil import row looks set to test the diplomatic relations between the two countries, coming months after operationalisation of the Kisumu oil jetty.