By JOHN MUTUA

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By REUTERS

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Kenya will allow Uganda’s state oil firm to import petroleum products through its port of Mombasa, effectively ending a months-long dispute between the two neighbours.

Uganda has been seeking alternative ways of importing petroleum products, including through a Tanzanian port, after its oil retailers for decades received their cargo through affiliated firms in Kenya.

Solomon Muyita, spokesperson for Uganda’s Ministry of Energy and Minerals, said the first shipment under the new system was expected in May.

“Kenya has agreed to give us a licence. Unoc (Uganda National Oil Company) is now free to import through Mombasa,” he said.

Kenya’s Energy Cabinet Secretary Davis Chirchir on Wednesday said that that work was in progress to issue a permit that will allow Unoc to import fuel directly through Kenya Pipeline Company (KPC).

“You will see Unoc getting a licence and then we will see how to work together because usage of our pipeline is an opportunity for us,” Mr Chirchir told our sister publication, the Business Daily.

Read: Oil: Kenya faces losses as Uganda shifts to Tanzania

“They will employ Kenya Pipeline Company’s infrastructure so there will be no loss of opportunity, the transporter will remain to be KPC. We are working closely with Uganda to resolve the challenge.”

Applying the brakes

The minister’s announcement came days after a case filed at the High Court in Machakos, 64km east of Nairobi, to block the licensing of Unoc was withdrawn.

The parties in the case reached a consent before High Court Judge Francis Rayola.

The case had been filed in November 2023 by Royani Energy Ltd, Acacia Ridge Construction and Charles Kombo, jointly with John Kinuthia Mwangi to stop the Energy and Petroleum Regulatory Authority (Epra) from granting the licence.

The traders had argued that Unoc wanted to take up space from Kenya Pipeline Company’s (KPC) western loading terminal, which belongs to Kenyan oil marketers.

The parties, however, reached an agreement before the Judge delivered his ruling.

“The case is hereby marked as withdrawn, with no orders as to cost,” the consent recorded before the judge stated.

After failing to get the license, Uganda escalated the matter to the East African Court of Justice (EACJ), accusing Kenya of placing unrealistic restrictions on Unoc before allowing it to access KPC system to transport its petroleum products from the Port of Mombasa.

Read: Why Uganda-Kenya fallout may not last

Treaty violations?

Uganda’s Attorney-General said in the EACJ case that Kenya was breaching various articles of the EAC Treaty and the Protocol for the Establishment of the East African Community Common Market.

It was Uganda’s argument that it does not require a licence from Epra to access the KPC system to transport petroleum products.

Among the orders sought by Uganda is a declaration that restrictions placed by Epra and orders obtained from the Kenyan High Court blocking the regulator from issuing the licence to UNOC contravenes the EAC Treaty.

Uganda imports 90 percent of its refined petroleum products through the Port of Mombasa, which is transported by KPC.

The products have been traditionally handled by oil marketing companies operating in Kenya through the Kenya Open Tender System (OTS) in government-to government arrangement between Kenya and Uganda. The OMCs in turn sell the products to Ugandan OMCs.

Late last year, Uganda made a policy shift in the manner in which it sources, imports and supplies petroleum products by empowering UNOC, a state corporation, to be the sole importer and supplier of all petroleum products for its market.

UNOC later engaged Kenya on the new policy shift and, to roll out the plan, Unoc says it sought to enter into a storage and transportation agreement with KPC. It then required certain regulatory requirements, including obtaining an import, export and wholesale of petroleum products (except LPG) licence from Epra.

The licence would allow Uganda use the petroleum transit infrastructure. The regulations, according to Uganda’s Attorney-General, included the incorporation of a subsidiary or registration of UNOC as a company or a branch in Kenya.

But Uganda says in the EACJ reference that the requirements are an unnecessary hindrance to the implementation of the policy. It, however, registered a branch in Kenya with the sole purpose of processing the licence.

Rapprochement

The court documents state that Epra further required Uganda National Oil Company to provide several documents and meet a raft of requirements to facilitate the issuance of the licence.

Read: Unoc monopoly leaves $270m oil logistics company on knife edge

“Whereas UNOC is being subjected to the Kenyan regulatory regime on licensing of importation of fuel, it is not an oil marketing company and does not desire to conduct the sale of petroleum products to be consumed in the Republic of Kenya,” said Rashid Musa Otika, acting general manager of the National Pipeline Company (U) Ltd.

Now, the row seems to have ended with an amicable solution, although sources say tariffs may be a sticking issue for the time being.

The licensing now allows UNOC to buy fuel from Vitol Bahrain, a move that will hit the revenues of Kenyan oil marketers who have, for decades supplied Uganda.

Uganda kicked off plans for the direct imports deal through Unoc months after Kenya announced an agreement with Gulf majors to import fuel on a 180-day credit period to ease dollar demand and prop up the shilling.

Kenya started the government-backed deal with Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company in April 2023.

The deal was set to expire at the end of last year but was extended to December 2024. Uganda imports an average of 2.5 billion litres of petroleum annually valued at $2 billion, with KPC and local oil firms handling at least 90 percent of the cargo.

But while Unoc’s entry into Kenya as a direct importer will hurt local oil firms, KPC will not suffer any revenue losses, given that the Ugandan company will continue using its storage facilities and transport network to ship the fuel to the neighbouring country.

Unoc  had targeted to start the direct importation from January but was forced to delay the roll-out after it failed to get a licence from Epra.