Kenya’s $100 million revenue at risk as Uganda shifts fuel import strategy

・The Ugandan government is on the brink of replacing the open tender system currently employed by Ugandan firms for the procurement of petroleum products from Kenya.

・Ugandan authorities maintain that the new system will bring stability to fuel inventories, ensure a secure supply, and address price fluctuations.

・This move might lead to Kenya forfeiting $100 million in annual earnings from managing Uganda’s petroleum and related products.

The Ugandan government is on the brink of replacing the open tender system currently employed by Ugandan firms for the procurement of petroleum products from Kenya.

Energy Minister Ruth Nankabirwa has presented the Petroleum Supply (Amendment) Bill 2023 in parliament, to grant authority to the state-owned Uganda National Oil Company (UNOC) to assume responsibility for oil supply.

The government held discussions with more than 40 fuel companies represented by the Sustainable Energies and Petroleum Association (SEPA) around a Cabinet resolution about the importation of refined petroleum and associated products.

As per the Cabinet resolution, which was disclosed by Nankabirwa, Unoc is set to become the exclusive importer of petroleum and its related products.

These supplies will be provided by the Vitol Group, after which Unoc will distribute them to private oil marketing companies for further sale.

“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.

“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,” she added.

Ugandan authorities maintain that the new system will bring stability to fuel inventories, ensure a secure supply, and address price fluctuations, TheEastAfrican reported.

Over the past three months, the cost of fuel has risen from Ush4,900 ($1.29) to Ush5,400 ($1.42) per litre of gasoline. A similar percentage increase has affected all petroleum products.

At present, Gulf-based companies provide petroleum products exclusively to three Kenyan firms, which then distribute them to Uganda’s oil marketing companies.

This move might lead to Kenya forfeiting $100 million in annual earnings from managing Uganda’s petroleum and related products.

Around 40 per cent of the fuel imported by Kenya is subsequently exported, primarily through Uganda, to the Democratic Republic of Congo and South Sudan.

Fuel supply challenges have plagued fuel imports to the Ugandan market for an extended period due to issues including election-related disruptions in Kenya, occasional non-tariff barriers, labour strikes among cross-border logistics companies, and, more recently, worldwide fuel shortages triggered by sanctions on Russia following its conflict in Ukraine.

Shortly after Russia invaded Ukraine and the subsequent global fuel crisis, Ugandan officials accused Kenyan oil dealers of capitalizing on the situation to generate substantial profits.