- Uganda has moved to the East African Court of Justice (EACJ) over alleged Kenya’s move to block it from importing its refined petroleum products.
- In 2016, Uganda opted to work with Tanzania to develop a pipeline to evacuate crude oil from its fields in Hoima, western Uganda.
- This dealt a blow to an initial plan to jointly construct a 1,500-kilometre-long pipeline from oil-rich Hoima to Kenya’s Lamu port, a project envisioned to cost about $2.5 billion.
Kenya’s fallout with Uganda on importing refined petroleum products has caused another rift between the neighbouring countries, threatening trade and bilateral relations.
On December 28, last year, Kampala lodged a case at the East African Court of Justice (EACJ) against Nairobi for blocking its plans to shift from purchasing petroleum products from Kenya to importing consignments.
Over the year, Oil Marketing Companies (OMCs) in Uganda have picked imports from Kenya Pipeline’s depots in Eldoret and Kisumu.
Kenya Pipeline Company (KPC) moves products through its pipeline network from the Port of Mombasa (Kipevu Oil Terminal) to Nairobi-Nakuru-Kisumu and Eldoret, where export volumes to the hinterland are then loaded onto trucks for delivery to the final destination.
In the latest developments, Uganda is opting to import its fuel products in what it feels would make the products cheaper and allow it to easily manage costs related to importation, including negotiating for terms with suppliers in the oil-producing countries.
In November last year, the Ugandan parliament passed the Petroleum Supply (Amendment) Act, 2023, granting Uganda National Oil Company (UNOC) a monopoly on supplying petroleum products.
The bill, first tabled before parliament on October 31, was expeditiously processed and passed by a quorum of 186 members announced by Speaker Anita, who presided over the sitting.
UNOC is a limited liability company owned by the government of Uganda, mandated to handle the State’s commercial interests in the petroleum sub-sector.
According to the Ugandan government, importing its products will help cut reliance on private OMCs and eliminate middlemen, which are factors said to contribute to instability in supply and unpredictable pump prices.
“All we want is to ensure we run away from the system exploiting Uganda. We hope our neighbours will understand this and that we are doing this for the betterment of the people of Uganda,” Energy and Mineral Development Minister Ruth Nankabirwa said after the bill’s passing.
However, Kenya is determined to protect its export business with Uganda’s main market, taking up to 70 per cent of exports through the Port and pipeline system.
Read also: Kenya under pressure to retain Mombasa Port as EAC’s leading harbour
The battle at the East African Court of Justice
In an application filed at the EACJ, Uganda, through its Attorney General, accused the Kenyan government of frustrating its efforts to have UNOC licensed to do business there.
It argues that the government has restrained the country’s energy sector regulator, the Energy and Petroleum Regulatory Authority (EPRA), from issuing them a licence for oil importation through Mombasa to Uganda.
Uganda claims it imports approximately 90 per cent of its refined petroleum products through the Port of Mombasa, which are transported using the pipeline owned and operated by KPC, owned by the Kenyan government.
Products have traditionally been handled by the OMC operating in Kenya through the former Open Tender System (OTS), which has since been replaced by the Government-to-Government arrangement between Kenya and oil companies in the gulf.
Selected OMCs in Kenya import and sell products to the rest of the industry, including in Uganda.
“The complete reliance and dependency on Kenyan OMCs to import and supply petroleum products to Uganda have exposed the Republic of Uganda to supply vulnerabilities resulting in an avoidable increase in fuel pump prices,” court papers filed by Uganda read in part.
Uganda wants UNOC to be the sole importer and supplier of all the petroleum products for the Ugandan market.
The landlocked country had engaged the Kenyan authorities on the planned policy shift early last year.
In line with the principles and provisions of the East African Community Treaty and Protocols made thereunder, the Kenyan authorities assured the Ugandan authorities of Kenya’s unwavering support in implementing the said policy.
Upon engagements with the relevant authorities in Kenya, UNOC sought to enter into a Storage and Transportation Agreement with KPC.
Consequently, UNOC was required to meet certain regulatory requirements, including obtaining an Import, Export, and Wholesale of Petroleum Products (except LPG) Licence EPRA to utilise the petroleum transit infrastructure in Kenya.
EPRA further required UNOC to provide several documents and meet a raft of requirements for EPRA to process and issue it with the Licence.
This includes proof of annual sales of up to 6.6 million litres of super petrol, diesel and kerosene, ownership of a licensed petroleum products depot and at least five retail stations locally.
Uganda says it found the requirements an unnecessary hindrance.
“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 and not destined for the Republic of Kenya,” Uganda’s Attorney General says in the court paper.
Kenya recently said it was waiting on a court direction later this month to respond accordingly to Uganda’s move to file a case at the EACJ.
The case in question is the hearing of a petition challenging the licensing of UNOC as an oil marketing entity in Kenya, filed in November last year.
The hearing was slated for this week (January 22).
“The Attorney General will advise on how to proceed from here given a case filed by Uganda at the East Africa Court of Justice,” a government official had said.
The Presidents of the two countries, William Ruto (Kenya) and Yoweri Museveni (Uganda) have also been roped into the impasse with an impending meeting.
Read also: Uganda’s oil revenue will fund roads, railway projects — Museveni
Is Kenya jilted?
Uganda’s move to import its products has rattled Kenya, which has profited from exporting oil products to the landlocked country for years.
This event brings back memories of a previous incident where it dumped Kenya in favour of Tanzania for a pipeline project.
Kenya Pipeline Company has invested heavily in the pipeline, and depots meant to serve the hinterland.
It has also been banking on the $10.5 million Kisumu Oil Jetty and improved infrastructure at its Eldoret depot to grow its regional petroleum export market.
Mahathi Infra Uganda Limited has built an offloading facility, storage tanks, and a barge moving fuel between Kenya and Uganda through Lake Victoria.
MV Kabaka Mutebi II has been used to move products since January last year, with the construction of three more vessels ongoing.
According to Mahathi Infra (Uganda) Limited, the fuel products business along Lake Victoria was to become one of the largest bilateral trade engagements between Kenya and the region.
Kenya’s export markets are Uganda, Rwanda, Burundi, Eastern DRC and parts of Tanzania.
Read also: Lake Victoria’s forgotten sea route revived
Uganda, however, remains Kenya’s top export market for imported oil products (super petrol, diesel, kerosene and Jet A 1-aviation fuel).
While it has been serving the Ugandan market through the Kisumu and Eldoret depots, Kenya Pipeline has lost about 20 per cent of its export business in the last four years, with competition remaining high on the Central Corridor connecting landlocked countries to the Port of Dar es Salaam (Tanzania).
Kenya serves the region through the Northern Corridor that connects the Port of Mombasa to the hinterland.
Eldoret and Kisumu depots have storage capacities of 48 million litres and 45 million litres, respectively.
When Uganda dumped Kenya
While Kenya and Uganda have remained close trading partners, the two countries have had a frosty relationship regarding joint investments in infrastructure.
In 2016, Uganda opted to work with Tanzania to develop a pipeline to evacuate crude oil from its fields in Hoima, western Uganda.
This dealt a blow to an initial plan to jointly construct a 1,500-kilometre-long pipeline from oil-rich Hoima to Kenya’s Lamu port, a project envisioned to cost about $2.5 billion.
Issues at that time included costly land compensation, availability, insecurity, and distance.
In April 2016, at the 13th Northern Corridor, the Heads of State Summit in Kampala, Uganda, officially chose the Tanzania route for its crude oil.
This left Kenya in the cold, forcing it to start planning on developing its pipeline to move crude oil from the Turkana fields.
The 1,400km (800 miles) pipeline will connect Uganda’s western region near Hoima, where big oil reserves have been discovered, with Tanzania’s port of Tanga, a project estimated to cost about $4bn.
The oil reserves in Uganda were estimated at some 6.5bn barrels, where France’s Total, China’s CNOOC and the Anglo-Irish company Tullow held most of the licences.
Kenya has yet to start its pipeline project as Tullow struggles to secure a strategic investor in Turkana after the exit of joint venture partners–Africa Oil Corp and Total Energies- in May last year, citing the unavailability of Project Oil Kenya.
Tullow had no option but to assume a 100 per cent equity position as it sought partners.
Read also: Cultural tensions ruffle Uganda’s oil economic promise
Uganda is Kenya’s biggest trading partner
Despite the differences, Uganda and Kenya remain key trading partners and among major players in the East African Community trade.
According to the Kenya National Bureau of Statistics (KNBS), Kenya’s exports to the EAC totalled $496.7 million in the third quarter of 2023 (Q3), up from $431 million in the corresponding period in 2022.
There was an increase in earnings from exports to Uganda (27.7 per cent), Tanzania (32.1 per cent), South Sudan (64.4 per cent) and the Democratic Republic of Congo (78.6 per cent).
“Specifically, there was increased domestic exports of cement clinkers to Uganda; lubricants and food preparations to South Sudan; wheat flour, food preparations, and preparations of organic-surface active agents to Democratic Republic of Congo; and re-exports of kerosene type jet fuel to Tanzania,” KNBS said in its latest balance of payment and international trade report.
Exports from Kenya are mainly petroleum products, palm oil and its fractions, iron or non-alloy steel, and manufactured goods.
Kenya’s key imports from Uganda include milk and cream, tobacco, cane, electrical energy and plywood.
Read also: Kenya’s exports surge within EAC and Comesa in Q3, trade deficit shrinks
