Uganda is upset that it was kept in the dark about the negotiations around the government-to-government fuel deal between Kenya and two Gulf nations, minutes of meetings in which a decision was taken to dump supplies from its neighbour show.
At meetings held last week and Monday this week, representatives of Uganda’s Ministry of Energy, the Uganda National Oil Company (Unoc) and oil marketers observed that the decision by Kenya to enter into the Gulf deal had left the neighbouring country’s supplies vulnerable and exposed its citizens to expensive pump prices.
“Changes by the Government of Kenya in April 2023 to enter into government-to-government importation structures with the government of UAE and the Kingdom of Saudi Arabia to manage the challenges they were facing were done without consultation with Uganda whether to their advantage or not,” say the minutes of the first meeting.
“Following the president's directive, of February 27, 2023 on the supply of petroleum products into the country, the ministry guided Unoc to negotiate with one of their suppliers Vitol Bahrain, to replace the existing oil import structures in Kenya and Tanzania.”
The minutes seen by the Business Daily have revealed a major fallout between Nairobi and Kampala after Uganda voted to dump Kenya’s oil marketers in favour of its State national oil company Unoc) -- which will now be buying fuel directly from Vitol Bahrain starting January 2024.
The fallout, which is set to further strain the relationship between Kenya and its biggest trading partner, also threatens to cut significant inflows of dollars into Nairobi, at a time the country desperately needs the greenback to pay for the fuel imports.
Uganda which imports 90 percent of her fuel through Kenya argues that Kenya dropped a transparent and price-competitive open tendering system for the Gulf deal without consultation.
Uganda’s Energy minister, Ruth Ssentamu, said using Kenya has posed challenges, resulting in Uganda receiving relatively costly products and ultimately impacting the retail pump prices.
“Unoc and Vitol Bahrain E.C. have negotiated a five-year contract, and the Partner will be financing the business by providing a working capital facility backed by its global balance sheet and working with Unoc to ensure competitive pricing of petroleum products,” Ms Ssentamu said.
Before the Gulf deal, Ugandan oil marketers had been accessing their petroleum product import allocations through their affiliated Kenyan OMCs registered and participating in Kenyan and Tanzanian import structures.
Uganda’s decision offers the country the chance to battle Kenya for the South Sudan, Rwanda and Congo DR fuel markets.
Uganda will, however, continue using Kenya Pipeline Company’s depots in western Kenya for all logistics, including loading of the fuel supplied by Vitol Bahrain.
Vitol is a Switzerland-based Dutch oil multinational. It partly owns the Fujairah Refinery in the United Arab Emirates (UAE).
Kenya signed the fuel deal with Saudi Arabia and the United Arab Emirates in March, allowing for the importation of fuel on a 180-day credit period. The fuel is for both local and transit markets.
Kenya has since September been making dollar payments for the cargoes every month and has so far paid Sh247.34 billion ($1,649,535,513).
Saudi Aramco, Abu Dhabi National Oil Company (Adnoc) and Emirates National Oil Company (Enoc) have since April been supplying Kenya with the fuel on credit.
The deal was aimed at stemming the free-fall of the Kenya shilling by cutting off the need for an estimated $500 million every month for spot purchases of fuel.
Forty percent of the fuel that Kenya imports is for the transit market, providing Kenya with much-needed dollars to make the payments for the fuel.
Uganda needs between 130-140 million litres of fuel every month, highlighting how the shift will impact Kenya’s government-to-government deal with the Gulf nations.
The neighbouring country is betting on the deal between Unoc and Vitol Bahrain to start controlling pump prices, in what will see it join Kenya in capping fuel prices.
Uganda’s decision looks set to test the diplomatic relations between the two countries, coming months after the operationalisation of the Kisumu oil jetty.
President Museveni’s administration kicked off plans to have Unoc directly buy fuel from a global supplier in February, the period when Kenya was nearing the completion of talks with the two Gulf nations.
An executive of a local oil firm who sought anonymity says that Uganda’s move will hurt Kenya’s dollar supply for the government-to-government deal besides giving Kampala a chance to eat into Kenya’s transit markets.
“Uganda is our single biggest transit market and this deal will take away dollars that we need to pay for the G-to-G fuel import deal. Uganda is likely to also start selling to DR Congo and South Sudan,” said the executive.
Uganda also says that it has been hit by supply shocks due to vulnerabilities of the Kenyan import plan, hitches that it says oil firms have used to hike prices. Unlike Kenya, Uganda does not regulate fuel prices.
“Despite the price competitive nature of the Open Tender System in Kenya and relatively normal supplies it provided... It has exposed Uganda to occasional supply vulnerabilities where Ugandan OMCs were considered secondly wherever there were supply challenges,” the minutes say.
“These supply vulnerabilities caused some supplies to exploit the situation, leading to high product costs at retail pumps.”
Uganda’s decision also casts doubts on the viability of the Kisumu oil jetty that was operationalised at the start of this year as Kenya sought to cement its position ahead of Tanzania as the entry point of fuel to East Africa.
Kenya has between the start of the year and July shipped 27 million litres of fuel to Uganda through the Kisumu oil jetty.
Experts see the Sh1.7 billion facility as integral to Kenya’s efforts to ward off competition from Tanzania as the main fuel import entry for fuel to Uganda and neighbouring nations.