Kenya tells Uganda to come clean on extra imported oil cargo

In May, Kenya allowed Kampala to import 65,000 cubic metres of oil via the Port of Mombasa but the former brought in 82,000 cubic metres.

In Summary
  • Uganda's imports amount to about 60 KT, necessitating smaller vessels which increases freight costs.
  • The logistics costs are likely to see pump prices in Kampala rise by 30%
Tankers ferrying cargo into Uganda line up for clearance at the Malaba boarder
TICKING TIME BOMB: Tankers ferrying cargo into Uganda line up for clearance at the Malaba boarder

Kenya did not impose a bond premium on Uganda's oil cargo that docked at the Port of Mombasa early this month as claimed by Uganda's Energy and Mineral Resources Minister Ruth Nakabirwa.

The minister had claimed that Kenya's Energy cabinet secretary Davis Chirchir had written to the Kenya Revenue Authority to increase the fee, an allegation Kenya has termed as illogical. 

"The cabinet secretary has no such power. Uganda must come clean on undeclared consignment of 17,000 cubic metres of diesel that attracted additional charges,'' a top official at the ministry told the Star. 

He added that KRA is guided by the East Africa Customs Management Coordination Act which must be adhered to by anyone operating a custom bonded warehouse.  

According to Kenya, VTTI, a private terminal handling Uganda's consignment is privately owned and determines its tariffs.

"Therefore, other than taxes which are statutory, including the rules of operation of custom bonded facilities, the rates charged by VTTI are purely commercial and are set by them and not the Government of Kenya." 

Uganda's imports amount to about 60 KT, necessitating smaller vessels which increases freight costs.

For instance, the diesel vessel recently brought by Uganda carried extra material not required locally, merely to fill the vessel and optimize freight economics.

Documents seen by the Star show that Vital imported 82,000 cubic metres of diesel under the direct import deal by Uganda National Oil (UNOC), higher than the 65,000 cubic metres approved by Kenya. 

In a letter dated July 2 to Commissioner of Customs and Border Control Dr Lilian Nyawanda and copied to Kenya's Energy PS Mohamed Liban, KRA Commissioner General Humprey Watanga and chief manager of Petroleum Monitoring Unit at KRA Benard Kibiti, VTTI is acknowledging receiving more than expected volumes.

"In this regard, we wish to appeal to your good office to consider a request to support the receipt of the said cargo of gasoil imported by UNOC,'' the letter reads in part. 

"The volumes 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."

Several regional papers have quoted Nakabirwa saying that Kenya doubled its warehousing bond to $45 million in a bid to frustrate Uganda's inaugural G to G oil consignment. 

She claims that the additional levies are likely to further push up pump prices, defeating the very purpose of the deal that intended to cut off middlemen, thereby guaranteeing much more affordable fuel prices to consumers. 

Even so, Kenya says that the bond fee escalated on extra consignment and is likely to hurt Ugandan fuel consumers who have been benefiting from much lower rates in the previous arrangement where oil marketers in Kenya have been handling imports. 

The shift has since introduced inefficiencies and escalated transport and import costs, directly impacting Ugandan consumers with rising oil prices.

Before, with eight cargoes arriving monthly for the region and Uganda's share being about 22 per cent per cargo, Ugandan marketers managed their finances efficiently, recycling cash just in time for the next shipment.

Under the new dispensation, having to import their entire monthly requirement in one go—comprising separate cargoes of diesel and super—places significant upfront financial burdens on them.

This shift not only increases financing costs but also complicates logistics.

Products arriving in Mombasa must now be stored or wait offshore, incurring either storage costs at private terminals or demurrage charges, as Kenya prioritises its products through its multi-product pipeline.

These additional expenses are a further financial strain on Uganda.

A cargo purchased from the Emirates National Oil Company at $65 per barrel from Jebel Ali port escalates to at least $80 before the shipping cost is incurred and other overheads shipping compared to the $90 all-inclusive cost of Kenya's government-to-government agreements.

In the new market structure, the fuel is acquired for UNOC by Vital Bahrain EC, shipped to the Port of Mombasa where it is discharged through the Kenya Pipeline Company’s network to Eldoret, Nakuru and Kisumu. It is then trucked across the border where it is sold to oil marketers.

In late 2023, Uganda threatened to shift its oil supply needs via the Tanga port in Tanzania, forcing Nairobi to back down and accept the direct importation route.

The Ugandan oil agency is now forced to pay $37.83 per cubic meter to use the KPC’s infrastructure, a move likely to push up pump prices in the landlocked nation by 30 percent, despite a drop in global rates. 

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