- Kenya is keen on extending its pipeline to Malaba (Kenya-Uganda border), with Uganda expected to construct a link line to Kampala.
- According to the Shippers Council of Eastern Africa (SCEA), Mombasa used to command up to 70% of transit business, but this has decreased to 60 per cent.
- Uganda imports an average of 2.5 billion litres of petroleum annually, valued at about $2 billion, with KPC handling at least 90 per cent of the volumes.
Kenya is courting Uganda in a fresh bid to retain and possibly increase petroleum exports amid increased competition from neighbouring Tanzania. In recent months, East Africa’s economic powerhouse has come under pressure from Tanzania, which is eyeing to tap more transit markets for imports and exports into the hinterland through the Dar es Salaam Port.
In the latest developments, Tanzania has offered to license Uganda National Oil Company (UNOC) to import petroleum products through Dar es Salaam. This was after an earlier decision by Nairobi to deny UNOC a licence to import its products, a move that would see the state agency supply the market, as opposed to the current state where Oil Marketing Companies (OMCs) are the major players.
The decision by UNOC came after Kenya went into a government-to-government deal with the Gulf, where oil giants Saudi Aramco, Abu Dhabi Oil Company (ADNOC), and Emirates National Oil Company (Enoc) picked an OMC for each cargo being shipped to Kenya.
Kenyan-based OMCs can import products on behalf of the local market: Galana Oil, Gulf Energy, Oryx Energy, One Petroleum Ltd, and Asharami Synergy.
Under the deal, the appointed OMC owns the petroleum products they receive at the Port of Mombasa and sells to peers in Kenyan shillings before being supplied to retailers.
Kenya has been pushing petroleum exports into Uganda through the Port of Mombasa, with products moved via Kenya’s pipeline to Uganda and Kisumu depots before being transported by road into Uganda.
Kenya serves the East African Community landlocked countries through the 1,700 kilometre-long Northern Corridor road network between Mombasa (Kenya), Uganda, Rwanda, and Burundi into Eastern DRC.
Tanzania serves the region mainly through the 1,300-kilometre-long Central Corridor, which runs from Dar es Salaam into Rwanda, Burundi, Uganda and Eastern DRC.
The two corridors facilitate export and import activities within the EAC region, combining rail, road and lake transportation networks.
According to the Shippers Council of Eastern Africa (SCEA), Mombasa used to command up to 70 per cent of transit business, but this has decreased to 60 per cent.
“It has lost to Dar es Salaam in the last two years but we are working towards regaining that,” SCEA told the Exchange.
Read also: Tanzania offers Uganda fresh oil import deal amid stand-off with Kenya
Tanzania’s strategy to drive petroleum exports
Tanzania is seen to capitalise on the on-and-off situation between Nairobi and Kampala, which saw Uganda take Kenya to the East African Court of Justice over UNOC licensing.
In a fresh twist of the processes, Nairobi is now keen to reconsider its decision in a move that will restore its relationship on petroleum exports with Kampala. Authorities in Kenya have agreed to license UNOC to handle refined products that will be heading to the Ugandan market starting in June.
This reset of relations comes after a recent meeting between President William Ruto and his Ugandan counterpart, Yoweri Museveni, in Uganda to resolve the import row.
“We have no problem with licensing UNOC,” Kenya’s Energy and Petroleum Cabinet Secretary Davis Chirchir told journalists during a media briefing in Nairobi.
Kenya is banking on its vast storage capacity pipeline to continue serving the region, with plans to extend the pipeline into Uganda.
Kenya Pipeline Company (KPC), which is responsible for the storage and transportation of petroleum products, runs a 1,795-kilometre pipeline between Mombasa-Nairobi-Nakuru-Kisumu and Eldoret, with the capacity to handle about 14 billion litres of petroleum products.
KPC has two major facilities in the Western region, the Eldoret depot and Kisumu depot, with storage capacities of 48 million litres and 45 million litres, respectively.
Uganda remains Kenya’s top export market for imported oil products (super petrol, diesel, kerosene and Jet A 1-aviation fuel). “Seventy per cent of our exports go to Uganda. We are keen to maintain that market and grow it further for Uganda and the entire region,” KPC said.
“Kenya Pipeline will still transport products,” Chirchir said on the licensing of UNOC, noting that Kenya is keen to build stronger ties with her neighbours and the entire region, including Rwanda, DRC, Burundi, and South Sudan.
Read also: Uganda National Oil Company begins fuel sales after Kenya fallout
Infrastructure development
Kenya has invested heavily in petroleum handling and related infrastructure. In August 2022, the country commissioned the $305.3 million Kipevu Oil Terminal in Mombasa, increasing the port’s fuel products’ handling capacity.
The new terminal has four berths capable of handling six different hydrocarbon import and export products. It is a 770-metre-long offshore facility with five sub-sea pipelines buried 26 meters under the seabed to allow for future channel dredging without interfering with the pipes.
It is fitted with a Liquified Petroleum Gas (LPG) facility, crude oil and heavy fuel oil and also has provisions for handling three types of white oil products (DPK- aviation fuel, AGO – diesel and PMS – petrol).
The new terminal can accommodate four ships concurrently with a capacity of 200,000 tonnes each. The old terminal can only handle one vessel at a time. Kenya also has the Kisumu Oil Jetty, which is being used to pump products for export to Uganda through Lake Victoria.
Mahathi Infra Uganda Limited has a corresponding facility in Uganda, storage tanks and a barge (MV Kabaka Mutebi II) used to move fuel products. The second barge is currently being tested.
“We were there recently and the testing were ongoing. It should come into use soon,” KPC managing director Joe Sang said.
Mahathi is expected to construct and bring two more vessels into use. Kenya also used the Kisumu Port to move products to Uganda, with two vessels in use.
“The revamped Kisumu port presents an opportunity for improved trade, logistics and connectivity of the lake region within the East Africa Community,” KPA management said.
Read also: Kenya under pressure to retain Mombasa Port as EAC’s leading harbour
It is also keen to improve trade with Tanzania. Last month, a team from Tanzania drawn from the Ministries of Industry and Trade, Immigration, Agriculture and Finance toured the lake port for engagements to accelerate trade partnerships between the two countries further.
KPC took over the Mombasa-based KPRL, the only refinery in East Africa, to further boost the handling capacity of petroleum products. At one point, the facility was jointly owned by the Kenya Government and Essar Energy of India. Until its closure in September 2013 following Essar’s pullout, it used to refine 40 per cent of all petroleum products requirements in the country.
The facility has become a storage centre, boosting Kenya’s product handling capacity alongside private investments. KPC is also set to build a $135.1 million Liquefied Petroleum Gas (LPG) storage and handling facility in Mombasa. KPC will install a 30,000-metric tonnes facility to get LPG from the Kipevu Oil Terminal Jetty through this.
“KPC must continue diversifying its product offering while expanding its reach in the regional markets. Fuel security is a critical driver of the economy, so the government continues to invest,” CS Chirchir said.
Read also: Tanzania’s Taifa gas to shake-up Kenya’s cooking gas market
Kenya-Uganda fuel pipeline
Meanwhile, Kenya is pushing for the extension of its pipeline to Malaba (Kenya-Uganda border), with Uganda expected to construct a link line to Kampala.
According to insiders at KPC, the pipeline extension is expected to commence in December this year. The pipeline will extend to Kigali in Rwanda and possibly Bujumbura (Burundi) in the future, with each country responsible for developing the infrastructure within its borders. However, a joint transaction advisor will be selected to maintain quality control.
The feasibility study for the Eldoret to Kampala pipeline extension was awarded to an international firm in 1997, and a report was submitted in 1999. This was after a study funded by the European Investment Bank indicated the project was feasible.
Uganda imports an average of 2.5 billion litres of petroleum annually, valued at about $2 billion, with KPC handling at least 90 per cent of the volume. The feasibility study for the Kampala to Kigali extension was awarded to the East African Community in September 2011, funded with $600,000 from the African Development Bank.
The governments of Kenya, Uganda, and Rwanda accepted the findings of both feasibility studies. The construction contract was initially awarded in 2007 to Tamoil, a company owned by the government of Libya. It was, however, voided in 2012 after the company failed to implement the project.
As of April 2014, fourteen companies had submitted bids to construct the pipeline extension from Kenya to Rwanda in a 32-month construction timeline, but the project has yet to kick off. KPC managing director Sang noted the company is looking to diversify its product offering by leveraging its expertise in the oil and gas sector and infrastructure.
“We are also emphasising the export markets across East Africa,” Sang said.
Read Also: Uganda’s oil revenue will fund roads, railway projects — Museveni
