President William Ruto holds talks with Uganda's President Yoweri Museveni at State House, Entebbe, in August, 2023. PHOTO | PCS
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KRA’s hand in Uganda, Kenya transit fuel middlemen fight
A tax on transit fuel cargo to Uganda by the Kenya Revenue Authority and management fees by local oil marketers selling petroleum products to Uganda are behind the latest round of protests by President Yoweri Museveni, who has accused Kenyan middlemen for inflating fuel prices shipped to Kampala.
Multiple players in the industry who spoke to the Business Daily said oil marketers charge a management fee for their handling service, which is also taxed by KRA at a rate of $10 (Sh1,512 at current exchange rates) per 1,000 litres of transit fuel.
The charges are passed on to Uganda alongside transport costs.
“The Kenyan company handling fuel for export is expected by Kenya Revenue Authority to charge a handling fee and normally, they charge $10 per cubic metre,” said a source who requested anonymity.
Museveni on Sunday accused Kenya’s ‘middlemen’’ of overcharging his country by up to Sh5,285 ($31) per tonne of fuel. This means that the fallout, which threatens to cut significant inflows of dollars into Nairobi when Kenya desperately needs the greenback to stop the weakening shilling, will also have an impact on KRA tax collections, should Uganda go ahead with the plan to cut off Kenya from its fuel supply chain.
Kenya’s oil marketers stand to take a major hit given the fortune they have been making from the transshipment business.
Mr Museveni’s protest in a post on social media platform X, formerly Twitter, on Monday is an escalation from last week when Uganda announced that it would stop importing fuel through Kenya from January next year, as it opts to buy directly from Vitol Bahrain under a five-year deal.
Kenya handles at least 90 percent of the 2.5 billion litres of fuel that Uganda imports every year, meaning that at least Sh3.39 billion is a management fee from which the KRA takes its share.
“Mr Museveni has a point because this is not a government-to-government deal but an agreement between the three and their counterparts in the Gulf,” said the industry source.
Oryx Energies, Galana Oil and Gulf Energy were hand-picked by Saudi Aramco, Emirates National Oil Corporation and the Abu Dhabi National Oil Corporation Global Trading to import the credit fuel for Kenya and her neighbours, including Uganda.
Mr Museveni said Monday that Ugandans are paying Sh17,818 ($118) for a ton of diesel from middlemen in Kenya compared to Sh12,533 ($83) offered by bulk suppliers and refineries.
A ton of super petrol in Uganda, he said, is going for Sh14,722 ($97.5) compared to Sh11,729 ($79) offered by refineries and bulk suppliers.
“Our wonderful people were buying this huge quantity of petroleum products from middlemen in Kenya,” Mr Museveni wrote.
“Why not buy from refineries abroad and transport through Kenya and Tanzania, cutting out the cost created by middlemen?”
But David Ndii, President William Ruto’s top economic adviser said to be one of the brains behind the G-to-G deal, has laughed off Uganda’s suggestion that it would bypass Kenya, citing the latter’s perceived limited choice as a landlocked country.
“The G-G is working like a charm. In fact, we are improving on it all the time. Contrary to many distortions I see here, it is not a public procurement. It’s a framework agreement that facilitates extended credit terms between the state-owned IOCs and our industry players,” Dr Ndii, the chairperson of the Presidential Council of Economic Advisers, wrote on X.
“How will the oil get to Uganda? Will they fly it in? In fact, contraband cargoes brought in by powerful people were a big problem for the OTS (Open Tender System) as they’d jump the discharge queue, clog storage causing huge demurrage charges.”
Besides direct revenues like management fees and corporation taxes, Kenya’s supply of dollars for the credit fuel will also be hit given that Uganda is the single-biggest market for Kenya’s transit fuel.
Kenya has since September been making dollar payments to the Gulf oil majors following the lapse of the 180-day credit period.
The Gulf companies have so far been paid Sh127.26 billion ($848,378,738) for the fuel. The firms are also set to get a further Sh247.43 billion ($1.64 billion) as the next instalment falls due.
Uganda is said to be angling for lower prices in the deal with Vitol Bahrain in what looks set to further turn the spotlight on the deal that Kenya signed in March.
Kenya and Uganda have the most expensive fuel in East Africa after Tanzania reduced pump prices on the back of falling prices in the global markets.
A litre of super petrol is going for $1.45 in Kenya and Uganda compared to $1.31 in Tanzania. Diesel is also cheaper in Tanzania at $1.35 per litre compared to $1.37 in Uganda and Kenya. Tanzania announced the reduced prices that came into effect from last week, attributing the relief to the drop in global prices on easing supply concerns caused by the conflict and tension in the Middle East.
In contrast, the Kenyan government has warned that prices will shoot and cross the Sh300 a litre mark in the coming months amid anticipated supply disruptions caused by the ongoing Israel-Palestine war.
American investment bank, Goldman Sachs maintained its oil price forecast of $100 a barrel by June 2024 on supply cuts from key producers such as Saudi Arabia and Russia.
