Uganda says that Kenya has backtracked on an earlier commitment, made in April last year, to support Kampala’s quest to directly import its fuel starting this month.
Last week, a senior official at the Ministry of Energy told the Star in confidence that the government is awaiting the hearing of a petition challenging the licensing of Uganda National Oil Company (UNOC) as an oil marketing entity in Kenya filed in November last year.
"There is another pending case in court on this matter. The hearing is slated for January 22. The Attorney General will advise on how to proceed from here given a case filed by Uganda at the East Africa Court of Justice,'' he said.
"We are now looking at a double legal constraint on commenting on this matter. Let's wait for the courts,'' he said.
The official wonders why Kampala is blaming the executive when it understands that there is a clear distinction between the three arms of government.
"The judiciary is independent, how can they blame the executive for a decision of an independent judiciary? The executive has been supporting their policy decision but this has been challenged in court''.
''We also need to speak to the merits of the case, that they are the ones who submitted themselves to Kenya’s legal jurisdiction. They registered UNOC a company in Kenya and applied for the licence. They did not meet the requirements and their application was rejected.''
Four petitioners, Royani Energy, Charles Kombo, John Kinuthia and Acacia Ridge Construction have blocked the Energy and Petroleum Regulatory Authority (Epra) from proceeding with a review of UNOC's license application in a ruling that was twice extended to December and later to January 22.
The petitioners sought conservatory orders to stop the Kenyan government from issuing a petroleum importation license to the UNOC, saying that Uganda's state-owned firm did not follow due process.
They argue that even though Uganda applied for the import, export, and wholesale of petroleum (except LPG) license in September 2023, it did not meet Kenya's regulator’s standards.
NOC was unable to substantiate either an annual sales volume of 6.6 million liters of Premium Motor Spirit/Super Petrol, Automotive Gasoil/Diesel, and/or Jet A1/Kerosene in Kenya.
Additionally, it did not provide evidence of operating 5 licensed retail stations in Kenya, operating a licensed depot in Kenya, or achieving a minimum annual turnover of $10 million for the last three years for applicants with operations outside Kenya.
Furthermore, the Ugandan firm did not demonstrate a track record in the oil sector and the changes it proposes would lead to increased product prices due to the additional margin UNOC plans to impose, alongside the already higher costs associated with importing smaller quantities.
Petitioners termed UNOC’s sneaky way of obtaining oil importation as unfair to competitors.
Even so, in a case filed by Uganda, it accuses Kenya of going against a deal signed in March that could have paved the way for UNOC to import and supply petroleum products back home.
Kampala has accused middlemen from Kenya of driving up prices when selling to Uganda, resulting in them having the region's highest pump prices ($1.44 per litre of super petrol compared to Kenya’s $1.37).
A litre of diesel is retailing at $1.38 in Kampala compared to $1.33 in Nairobi.
Uganda is planning to ape Kenya's government-to-government oil import plan to control fuel costs in the country.
Museveni's administration plans to operate using Kenya’s oil transportation infrastructure which will allow it to purchase oil directly from Vitol Bahrain.
UNOC will be the sole importer of petroleum and related products, supplied by Vitol Group. It will then sell to private oil marketing companies.
Throughout the months-long dispute, particularly since the renewal of Kenya’s deal with the three Gulf companies in September, Uganda has been searching for potential alternatives to relying upon Kenya for importing their oil.
Tanzania’s port of Dar es Salaam has been brought up as a potential alternative, and conversations between the governments of Uganda and Tanzania have taken place on the matter, however, the KPC has far superior networks for the importation, prompting Uganda to push hard on Kenya granting UNOC the local operating license.
Logistics expert Sally 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.
Since 2012, Uganda has been meeting 90 percent of its petroleum demand through the Northern Corridor, commonly known as the Kenyan Corridor.
This reliance is attributed to Kenya's extensive expertise in import logistics and the well-established pipeline infrastructure that Kenya has developed over time.
Uganda presently enjoys competitive freight premiums under Kenya's Government-to-Government (G-to-G) arrangement compared to the central corridor.
Uganda's oil imports constitute a significant 23 percent of the total transit market that operates within the Kenyan corridor, traditionally managed by Private Oil Marketing Companies licensed to function within Kenya's importation framework.
Oil marketers in Kenya argue that UNOC’s entry surmounts nationalization and is a violation of the property rights of oil marketers who have painstakingly developed their capacity over time.
Furthermore, oil marketers currently own the demand for the line fill in the Kenya Pipeline Company system, and the government cannot simply redistribute it to UNOC, especially considering the system's constraints and finite capacity.
The plan also implies potential job losses for Kenyan oil marketing companies, transporters, and drivers currently engaged in business operations in Uganda.
Being a landlocked country, Uganda relies on Kenya and its Port of Mombasa, which means that UNOC must adhere to Kenyan standards to operate in the country. Consequently, UNOC may act as an intermediary, potentially making petroleum products in Uganda more expensive.
The Pearl of Africa’s new arrangement will see the country import smaller cargo shipments of up to 44.999 Metric Tons to meet the daily estimated demand of 36,000 barrels/day.
Due to the lower quantities required, these imports will incur higher freight costs influenced by economies of scale, this move contrasts with the existing arrangement in Kenya which ensures larger cargo shipments thus reducing freight costs.
Uganda's annual demand is projected to increase by seven percent annually, which also exposes them to higher default risk in the event of supply shortages due to shifting supply dynamics.
It costs $4,800 (Sh720, 000) to ship cargo to Kampala via Dar compared to $2,700 (Sh407, 000) via Mombasa.
A petroleum expert James Mwavali faults litigious Uganda, saying the policy decision to make UNOC the sole importer into Uganda will disenfranchise Kenyan businesses that have been doing business in Uganda.
"It will also displace the Kenyan OMCs doing transit business from the KPC system which amounts to expropriation by the Kenyan and Ugandan executive (these are the excesses the court in Machakos is trying to protect against).
'' Uganda's demand is about 22 percent of the region's demand imported under OTS/G to G and Uganda will have to bring a smaller ship which will be more expensive as opposed to the bulk procurement that has economies of scale.
He adds that what Museveni is rooting for will also present an operational problem in terms of planning. Kenya cannot prioritize Uganda products over Kenya products in the KPC system.
