Kampala sues Nairobi as fuel import row escalates
Tuesday January 02 2024
Uganda has taken Kenya to the East African Court of Justice after Nairobi denied its government-owned oil marketer a licence to operate locally, and handle fuel imports headed to Kampala.
Uganda has taken Kenya to the East African Court of Justice after Nairobi denied the neighbouring country’s government-owned oil marketer a licence to operate locally, and handle fuel imports headed to Kampala.
The Yoweri Museveni-administration filed the case against Kenya on December 28, highlighting the shaky diplomatic ties between the two neigbours and trade partners.
In November, Kenya declined to issue Uganda National Oil Corporation (Unoc) with licence to operate as a local oil marketer, prompting Uganda to go to the regional court last month in a bid to compel Kenya to issue the greenlight.
Uganda says that Kenya has reneged on an earlier commitment, made in April last year, to support Kampala’s quest to directly import its fuel starting this month.
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Kenya, through the Ministry of Energy and the Energy and Petroleum Regulatory Authority (Epra) issued a raft of requirements that Unoc needed to comply with in order to get the licence.
“Unoc found the above requirements an unnecessary hindrance to the implementation of its petroleum policy as the petroleum products in issue were wholly transit goods not destined for the Republic of Kenya,” the Ugandan Attorney-General says in the court documents.
Annual sales
The requirements include proof of annual sales of 6.6 million litres of super petrol, diesel and kerosene, ownership of a licensed petroleum depot and at least five retail stations locally.
Unoc says that it complied with other requirements such as registering a branch in Kenya under protest as it raced to ensure that Uganda’s deal to directly buy fuel takes off smoothly.
The continued impasse raises questions on the state of the diplomatic relations between Kampala and Nairobi, given that this is the first time that countries have dragged each other to the regional court.
“Will this be the new trend now? Do the presidents talk to each other? What are the ramifications on the wider East African Community integration process?” posed an expert who sought anonymity.
Uganda will from this month start buying fuel directly from Vitol Bahrain, following a fall-out triggered by Kenya’s decision to enter into a government-backed deal with three Gulf oil majors.
With Kenya dragging its feet in granting Unoc a local licence, Uganda has also been in talks with Tanzania to use the Port of Dar es Salaam to handle the fuel imports.
But given KPC’s superior network compared to the facilities in Tanzania, Uganda has gone all out to ensure that Kenya grants Unoc the licence.
Global market
“In order to implement the policy (decision by Uganda to directly buy fuel in the global market), it is necessary for the Republic of Uganda, through Unoc, to transport petroleum products through the Republic of Kenya under the infrastructure of KPC,” Uganda’s Attorney-General adds in the court papers.
Uganda imports an average of 2.5 billion litres of petroleum annually valued at $2 billion (Ksh302.34 billion), with KPC handling at least 90 percent of the cargoes.
A shift to the Port of Dar es Salaam would have significantly hurt KPC's revenues given that Uganda is the single biggest market for the transit market imported through Kenya.
Read: Minutes reveal Kenya, Uganda fallout on secret Gulf fuel deal
The shift would have also denied Kenya Revenue Authority taxes from management fees that local oil firms charge their Ugandan counterparts for handling transit fuel.
The impasse also amplifies the spat between the two countries less than two months after President Museveni accused Kenyan middlemen of being behind the high pump prices in Kampala even as global prices of the commodity continue to fall.
In November last year, Mr Museveni said that pump prices in Kampala were inflated by up to 59 percent in the wake of the deal that Kenya signed with Saudi Aramco, Abu Dhabi National Oil Corporation and Emirates National Oil Company.
A litre of super petrol is currently going for $1.44 in Uganda compared to $1.37 in Kenya while a litre of diesel is retailing at $1.38 in Kampala compared to $1.33 in Nairobi.
Uganda has the costliest fuel in the region and bets that directly buying the commodity would help lower prices.