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Winners and losers as Uganda embarks on direct fuel imports

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The Ugandan Minister of Energy and Mineral Development Ruth Nankabirwa tour the Port Facility with the Kenya Ports Authority (KPA) MD Cap William Ruto (second left) during the reception of Uganda's First Oil Consignment Shipment at the New Kipevu Oil Terminal (KOT) in this photo taken on July 3, 2024. PHOTO | KEVIN ODIT | NMG

Two vessels carrying petroleum products destined for Uganda docked at the Mombasa port on July 3, heralding the beginning of a new era of energy independence for the landlocked country, which has been depending on Kenyan private oil marketers for its fuel supplies.

MTNavig8 Matinez, sailing under the flag of Liberia, docked at Kipevu Oil Terminal 2 (KOT2) carrying about 58,000 metric tonnes (MT) of petrol, while MT Sinbad, laden with about 70,000MT of diesel also docked in Mombasa.

A delegation of Uganda government officials led by Energy and Mineral Development Minister Ruth Nankabirwa, received the historic consignment.

The departure from Kenya-facilitated supply, was hailed as a necessary move that would deliver lower prices, as the Uganda government, and especially President Yoweri Museveni, had complained of exploitation by Kenya-based cartels, which ultimately led to higher costs.

Kampala even explored the possibility of importing fuel through the Tanzanian port of Dar es Salaam.

Meanwhile, it changed the law to empower the Uganda National Oil Company (Unoc) to import fuel directly into the country.

But, after months of negotiations and two court cases -- one still pending at the East African Court of Justice -- Uganda still picked Kenya to handle its petroleum imports, saying Tanzania would only come in during crisis.

Unoc Chief Executive Officer Proscovia Nabbanja said the new deal with Vitol Bahrain, would save close to $100 million, which Ugandan oil companies were losing to Kenyan dealers annually.

Ms Nabbanja said Unoc, as a sole importer, would fortify the government's ability to ensure a consistent supply of petroleum products.
Ugandan Assistant Commissioner of Customs External Operations Julius Rubagumya said that, with the clearance of Uganda-bound fuel at Mombasa port, there will be end-to-end visibility on the fuel supply chain, which will enable government identify and resolve related issues in real time and minimise delays.

So, is the era of cheap fuel here?

Not yet. Ugandans should not expect lower prices at the pump soon, as the government is focusing first on increasing revenues, ensuring security supply of fuel and concluding pending agreements with Kenya.

And Kenyan oil marketing companies (OMCs) have been given a three-month window before officially being cut out of transactions with Uganda, as Unoc moves to handle upstream, midstream and downstream oil operations.

Minister Nankabirwa said the partnership with Vitol targets to increase tax from fuel products, which will in turn yield higher collections to support implementation of government programmes to the benefit of Ugandans.

The Ugandan Minister of Energy and Mineral Development Ruth Nankabirwa during the reception of Uganda's First Oil Consignment Shipment at the New Kipevu Oil Terminal (KOT) in this photo taken on July 3, 2024. PHOTO | KEVIN ODIT | NMG

“We expect the first oil to arrive in Uganda this week and, with the investment in the oil transportation starting at KOT2 -- which can handle several vessels at a go -- infrastructure by Kenya Pipeline Company (KPC), I am confident to ensure constant supply of petroleum products to Uganda on time,” Dr Nankabirwa.

Outstanding issues

She added that the government was working on ironing out the outstanding issues in the contract with Kenyan firms in the next three months before Unoc fully takes over.

“To ensure a seamless transition of the importation from the G2G system to the arrangement by Unoc, I have given the Ugandan licensed oil marketing companies involved in the petroleum products importation a transition period of three months, to continue using their Kenyan affiliates to handle the logistics within the Kenya pipeline system, to prepare for the full takeover of the operations by Unoc. Unoc is expected to use this time as well to familiarise itself with the operations and scale up to the full implementation of the policy change,” the minister said.

“The oil marketers had asked me why Unoc alone but the only answer I could give is, why not? Because it is owned by the Ministry of Energy with 51 percent shares and 49 percent by Treasury, making it a fully government entity, rather than allowing brokers to exploit Ugandans.”

Unoc came into being through the amendment of the Petroleum Supply Act last year, which created it as a single supplier, making it mandatory for oil marketers to sign sale and purchase agreements (SPAs).

Uganda had protested at the Kenyan supply systems, the open tender system and government-to-government deals, as exploitative, forcing the government to seek alternative ways of importing petroleum products, including through a Tanzanian port.

In a win-win deal, Kenya Ports Authority (KPA) and KPC will continue handling petroleum products in Kenya while Ugandan transporters and private oil storage companies will aid in providing storage facilities.

This is in consideration of the fact that the Uganda government only depends on the Jinja storage terminal, with a capacity to hold 30 million litres, which is just enough to supply Uganda market for 4.2 days, at current demand figures of seven million litres per day.

The demand of petroleum products is increasing in Uganda, with a projection of 10 million litres per day in the next five years, so Unoc will be grappling with storage capacity to ensure a constant supply.

Already, 80 Ugandan oil dealers have signed SPAs with Unoc to handle about 90 percent of Uganda's petroleum imports amounting to approximately 2.5 billion litres, valued at about $2 billion, annually, according to Unoc.

Uganda is banking on Kenya to receive, temporarily store and transport the cargo via the KPC pipeline to Eldoret and Kisumu depots where Ugandan transporters will pick up the consignment to distribute to different parts of the country.

Mr Rubagumya said the Uganda Revenue Authority had deployed more staff in Mombasa and other strategic stations in Kenya to ensure clearance of fuel products in the shortest time.

Dr Nankabirwa said it took 12 months to reach key agreements with Kenya, which had prior agreements with government-backed deals with Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company in April 2023, for oil supply to regional markets.

Kenyan private oil marketers that have supplied Uganda for decades protested the move to have Unoc import the oil directly, effectively edging them out.

Dr Nankabirwa said Uganda has learnt lessons: An enhanced understanding of the challenges facing the importation of petroleum products during the 12 months of negotiations before securing the importation, wholesale, and export of refined petroleum products from the Energy and Petroleum Regulatory Authority, signing of the tripartite agreement between Kenya, Uganda and Unoc, which stipulates delivery date ranges, and signing the transportation and storage agreement.

According to KPC, the first fuel was expected to be picked in either Eldoret or Kisumu for forward delivery before the weekend.

Mv Navig8 Martinez Fuel tanker docks at the Mombasa Port during the reception of Uganda's First Oil Consignment Shipment at the New Kipevu Oil Terminal (KOT) in this photo taken on July 3, 2024. PHOTO | KEVIN ODIT | NMG

While the new deal seemed to potentially deprive Kenyan players of business, officials say it will significantly increase the volume of fuel to different parts of East Africa from the current 40 percent of total fuel handled in the Mombasa port.

“Currently, we handle 20 percent of petroleum products destined for Uganda, 10 percent to South Sudan, and the same percentage to Rwanda. With the new KOT2 and such agreements, Kenya projects to increase transit fuel in the coming months,” said Principal Secretary for State Department of Petroleum, Mohamed Liban.

According to KPA, the 2023/2024 annual throughput of petroleum products in Mombasa was 9,636,098MT, whereas the designed capacity of the new KOT2 is 24,960,000MT.

KPA Managing Director William Ruto said the new development has increased the total designed capacity of the marine oil terminals to 27,560,000MT against a demand forecast of 8,329,000MT in 2022/23, representing 30 percent marine terminals utilisation.

The Uganda deal has breathed new life into the new KOT2 facility.

“Marine operations, including pilotage services are provided on a 24/7 basis and this work arrangement sustains molecule fluidity in the mid-stream supply chain and ensures price stability of petroleum products in Kenya and the region. Together, we can unlock new opportunities, drive progress and build a brighter future for our region,” Capt Ruto said, adding that the deal with Uganda is part of the plan to increase throughput of fuel and, with the KOT2 and KPC storage facilities, it can handle any size of the vessel and a reliable supply of petroleum products.

Heavy investment

“Our efficiency due to heavy investment in infrastructure is helping the country to attract more businesses and this is one of it,” the ports boss said.

KPA boasts the $320 million KOT2 facility, an offshore island terminal with four berths whose total length is 770 metres. Three berths are already in use.

The offshore facility can discharge and backload three large petroleum tankers of up to 120,000 dead weight tonnage (DWT) simultaneously, hence facilitate the importation and exporting of diesel, petrol, heavy fuel oil, kerosene, aviation fuel, liquified petroleum gas and crude oil.

The facility has five sub-sea pipelines and six onshore pipelines connecting the terminal to the Kenya Petroleum Refineries Limited and the KPC's storage tanks.

Kenya has proved capable of handling huge volumes of petroleum products with KPC having 45 tanks with a total storage capacity of 484 million litres, of which 254 million litres is reserved for refined products.

According to the Uganda-Kenya SPA, Kampala chose Kenya over Tanzania due to its investment in the port and the shorter distance.
The Uganda government said Unoc expects the OMCs that submitted their applications in May 2024 to sign the SPA.

On the criteria of allocating fuel imported in the arrangement, Unoc in the first months will consider ranking by historical importation figures, market presence, and indicated interest backed with demonstrated financial strength.

The deal also seemed to knock out Kenyan truckers out of the business of transporting the fuel but Uganda does not have enough fuel transporters, hence, Kenyan truckers are still eyeing the business in transporting the cargo from Kisumu and Eldoret into Uganda.