The open tender system used by Ugandan companies to buy petroleum products from Kenya is in its final days after Energy Minister Ruth Nankabirwa tabled the Petroleum Supply (Amendment) Bill 2023 in parliament, seeking to empower government-owned Uganda National Oil Company (Unoc) to take over the supply of oil.
The government had met with over 40 fuel companies under the Sustainable Energies and Petroleum Association (Sepa), to discuss a Cabinet resolution on the importation of refined petroleum and related products.
According to the Cabinet resolution, announced by Ms Nankabirwa, Unoc will be the sole importer of petroleum and related products, supplied by Vitol Group. Unoc will then sell to private oil marketing companies.
“Unoc and Vitol Bahrain E.C have negotiated a five-year contract, and the partner (Vitol) will be financing the business by providing a working capital,” she said, adding: “Using Kenyan importers had exposed Uganda to occasional supply vulnerabilities where the Ugandan retail companies were considered secondary whenever there were supply disruptions, which affected retail prices.”
“Kenya has for decades decided what petroleum products Uganda buys, when, from where, how much, who buys and at what price,” Ms Nankabirwa added.
Ugandan officials argue the proposed system will stabilise fuel stocks, create security of supply, and solve price fluctuations. 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.
Currently, the companies in the Gulf supply petroleum products to only three Kenyan companies that in turn sell to Uganda’s oil marketing companies.
The decision could see Kenya lose up to $100 million it has been earning from handling Uganda’s petroleum and related products per year. About 40 percent of the fuel Kenya imports is exported, mostly through Uganda to the Democratic Republic of Congo and South Sudan.
Early this year, when Kenya was facing a deep depreciation of its currency and was spending a lot of money per month on unplanned, short-term fuel purchases, it changed the system from an open tender policy to a government-to-government import mechanism, where it made a deal with Saudi Arabia and the United Arab Emirates. Uganda said then that it could jeopardise fuel supplies and lead to a spike in retail fuel prices.
In March, Uganda’s President Yoweri Museveni directed 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.”
Ninety percent of Uganda’s fuel imports are sourced from Kenya, while 10 percent comes from Tanzania, but during Kenyan elections, 50 percent of requirements for top OMCs are sourced from the central corridor.
Supply hitches have dogged the delivery of fuel imports into the Ugandan market for years, mostly arising out of elections in Kenya, sporadic non-tariff barriers, industrial action among cross-border logistics companies, health emergencies particularly mandatory testing during the Covid-19 pandemic, and most recently, global oil shortages due to sanctions against Russia over its war in Ukraine.
Within weeks after Russia invaded Ukraine and a global fuel crisis ensued, officials in Uganda said Kenyan oil dealers were taking advantage of them to rake in profits.
Dr Joseph Muvawala the executive director of the National Planning Authority (NPA) had asked the government of Uganda to consider direct importation of crude from oil-producing and exporting countries. This, he said, would result in prices at the pump dropping by 15 to 20 percent.
“If we imported our crude, refined in Mombasa, it would lower the price of fuel,” he said.
However, industry players say eliminating the companies in Kenya that control the oil imports supply chain and obtaining slots to refine the crude at the Mombasa refinery, is a complex process for landlocked Uganda to navigate.
This crude purchase and import deals – given via Kenya’s open tender system – that oil marketing and distribution companies in Uganda depend on to receive their fuel products, are a fixture in the supply chain and an uphill task for Kampala to sidestep, experts argue.
Additional reporting by Julius Barigaba