By Spy Uganda
Kampala: Oil dealers in Kenya are facing a crisis as Uganda in the midst of a dispute with Nairobi, has opted to engage in discussions with Tanzania regarding the importation of fuel through the Port of Tanga rather than the Port of Mombasa.
Initially, Uganda had considered using the Port of Dar es Salaam, but the increased road distance of 1,715.6km from Dar es Salaam to Kampala, compared to the 1,147.6km between Mombasa and Kampala, prompted a reconsideration.
The shorter distance through Mombasa translates to a cost saving of up to $35 per cubic meter for Uganda. Kenyan State officials and oil executives had initially perceived Uganda’s consideration of Tanzania as a negotiating tactic, given Mombasa’s cost-effectiveness and efficiency.
However, recent revelations indicate that Uganda and Tanzania are actively engaged in talks to facilitate fuel imports through the Port of Tanga, which is much closer to Kampala. Tanga, East Africa’s oldest port and Tanzania’s second-largest, has been expanding its capacity to handle increased cargo.
The industry, previously skeptical about Uganda’s intentions, now acknowledges the seriousness of the discussions between Uganda and Tanzania. The prospect of an agreement to utilize the Tanga port is imminent, potentially narrowing the price difference with Mombasa. Uganda, currently obtaining 90% of its fuel through Kenya and 10% through Tanzania, could receive concessions from Tanzania to mitigate any cost disparities.
“The mood in the industry has been that the Tanzania talk by Uganda was just posturing to push Kenya to give it concessions. But this has changed completely because Uganda are now serious and are close to reach an agreement with Tanzania to use the Tanga port,” a source confirmed.
“Tanga is not as far (from Kampala) as Dar and therefore the price difference with Mombasa will not be as big. We also understand that Uganda could be given some reliefs by Tanzania to close the gap” the source added.
The Petroleum Outlets Association of Kenya (Poak), representing independent oil dealers, warns that if Uganda proceeds with the Tanzania route, it would severely impact local oil companies especially small dealers to close. Approximately one-third of all fuel imported into Kenya serves the transit market, constituting around 200 million liters monthly.
Poak Chairman. Martin Chomba emphasizes the potential negative effects on Kenya’s foreign exchange earnings, as oil dealers are paid in US dollars. Last year, Uganda reported importing $2 billion worth of fuel through Kenya annually.
“If Uganda indeed moves to the Tanzania route a lot of local oil companies will really suffer because they will lose their biggest market,” Martin Chomba said.
About a third of all fuel imported into Kenya is destined for the transit market, translating to an average of 200 million litres monthly. Mr Chomba said that a lot of especially small dealers rely on this transit market and would likely be forced to close shop.
He further said that Kenya would lose a key source of foreign exchange. Oil dealers are paid for their fuel exports in US dollars. Uganda last year said it imports fuel worth $2 billion through Kenya annually.
“The transit market is a key source of forex for the country and this would really affect dollar inflows,” said Mr Chomba.
State-owned Kenya Pipeline Company (KPC) would also emerge as a major loser. This is because without the nearly a third of transit market, it would lose millions of shillings in depot tariffs, which are a major source of revenue for KPC. Currently, oil firms evacuating fuel from KPC’s Nairobi fuel depot pay Ksh2,582.72 ($17.75) per cubic-metre.
This will further rise to Ksh2,791.85 ($19.19) per cubic metre in July.
The origin of this latest spat between Kenya and Uganda comes following the decision by Kampala last year to designate State-owned Uganda National Oil Company (Unoc) as the importer of all its fuel for supply to private oil dealers.
Unoc subsequently applied to Kenya’s Energy and Petroleum Regulatory Authority (Epra) in September 2023 to be registered as an OMC in Kenya, which would allow it to import and export fuel like other OMCs and utilize Kenya Pipeline Company’s (KPC) pipeline.
Epra however declined UNOC’s application because UNOC could not substantiate the requisite annual sales volumes of 6.6 million litres of either super petrol, Automotive Gasoil (diesel), and/or Jet A1/kerosene in Kenya.
Uganda has since then sued Kenya at the East African Court of Justice (EACJ).
