Uganda and Kenya oil battle now goes to court

Royani Energy, Charles Kombo and John Kinuthia, trading as Acacia Ridge Construction on Tuesday petitioned the High Court in Machakos under a certificate of urgency to block UNOC from receiving an operating license, citing a violation of fundamental rights.

In the court papers seen by the Star, the petitioners sought conservatory orders to stop the Kenyan government from issuing a petroleum importation license to UNOC, saying the Uganda state-owned firm did not follow due process.

The respondents are listed as Energy and Petroleum Cabinet Secretary, The Attorney General, Energy and Petroleum Regulatory Authority Director-General and Uganda National Oil Company Limited.  

“Conservatory order be issued against the first respondent (CS Energy and Petroleum) or anyone whatsoever from interfering with the third respondent’s mandate in the issuance of oil importation license to the 4th respondent pending the hearing and determination of this application for 30 days,’’ the court application reads in part.

The petitioners were ordered to serve the respondents within 72 hours. The respondents have 10 days to file their reply. The matter is set for hearing in the presence if both parties on December 6. 

This comes just days after Kampala announced it would abandon reliance on Kenyan oil marketers to import and distribute its fuel products, citing delays and undersupply that has pushed up fuel prices in the land locked country.

The price of fuel has in the past three months increased from Ush4, 900 ($1.29) to Ush5, 400 ($1.42) per litre of petrol.

A similar percentage increase has been registered with all the petroleum products.

Uganda has decided to follow the Kenyan government's route of government-to-government oil import in an effort to control fuel costs in the country.  

Effective January 1, 2024, Uganda will initiate direct oil imports from Vitol Bahrain, facilitated by the Uganda National Oil Company (UNOC).

UNOC will be the sole importer of petroleum and related products, supplied by Vitol Group. It will then sell to private oil marketing companies.

Last week, the country's Energy minister Ruth Nankabirwa tabled a Petroleum Supply (Amendment) Bill 2023 in Parliament in preparation for the policy shift. 

Currently, the companies in the Gulf supply petroleum products to only three Kenyan companies that in turn sell to Uganda’s oil marketing companies.

To  meets its new mandate UNOC submitted to the Kenyan Energy and Petroleum Regulatory Authority (EPRA) an application for the import, export, and wholesale of petroleum (except LPG) in September 2023.

However it failed to meet Kenya's regulator’s standards to be awarded the necessary license to function as an oil importer, necessitating the government to send a special envoy to the President of Kenya seeking various waivers on the required approvals

A source at the regulatory body told the Star that UNOC was unable to substantiate either an annual sales volume of 6.6 million litres of Premium Motor Spirit/Super Petrol, Automotive Gasoil/Diesel, and/or Jet A1/Kerosene in Kenya.

Additionally, the firm did not provide evidence of operating five licensed retail stations in Kenya, operating a licensed depot in Kenya, or achieving a minimum annual turnover of $10 million (Sh1.52 billion) for the last 3 years for applicants with operations outside Kenya.

It further lacked 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 in the case term UNOC’s quest for obtaining an oil importation licence as unfair to competitors.

The Ugandan administration has however criticised Kenya's government-to- government deal saying it was left out of the conversation that directly impacts their oil and petroleum market prices.

Since 2012, Uganda has been meeting 90 per cent of its petroleum demand through the Port of Mombasa (Northern Corridor) where the country enjoys competitive freight premiums under Kenya’s (G-to-G) arrangement compared to the Central 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.