By Insight Post Uganda
Uganda -Kenya diplomatic relations have been tested after Kenya boldly rejected Uganda’s request to utilise its oil pipeline for fuel transportation.
The decision has left Uganda frustrated, particularly due to a lack of transparency in the negotiations surrounding a government-to-government fuel deal between Kenya and two Gulf nations.
The pivotal moment in this diplomatic friction occurred in September when Kenya rejected Uganda’s application to use its pipeline for fuel transport.
The Nation media reported that Kenya expressed concerns that granting Uganda access could displace local oil marketing companies (OMCs) currently utilising the pipeline.
Uganda, in response to this denial, took a significant step by entering into a five-year contract with Vitol Bahrain E.C. This means starting from January 1, 2024, Uganda will cease buying fuel from Kenyan firms, relying solely on Vitol Bahrain E.C. to meet its entire fuel needs.
Currently, according to the Nation, Kenya supplies approximately 90% of Uganda’s fuel, with the remaining 10% sourced through Tanzania.
In an attempt to find an alternative solution, the State-owned Uganda National Oil Company (UNOC) applied to Kenya’s Energy and Petroleum Regulatory Authority (EPRA) in September. UNOC sought registration as an OMC in Kenya, allowing it to import and export fuel and use Kenya Pipeline Company’s (KPC) pipeline.
Unfortunately, UNOC’s application was declined by EPRA. The reasons cited included the inability to substantiate the required annual sales volumes of 6.6 million litres of fuel and the lack of evidence for meeting specific operational criteria, such as operating licensed retail stations and achieving a minimum annual turnover of $10 million for the last three years.
The rejection posed significant challenges for UNOC, prompting the Government of Uganda to send a special envoy to President Dr. William Ruto, seeking waivers on the required approvals. However, the hurdles were not just procedural; there were broader concerns about the potential displacement of Kenyan companies and the implications of such a move.
One critical aspect was the fact that UNOC’s approval would have meant displacing Kenyan companies from their allocations by KPC, a move that could be viewed as nationalisation and a violation of the property rights of oil marketers.
The existing demand for line fills in the KPC system is currently owned by oil marketers, and redistributing it to UNOC could further complicate the situation, considering the system’s constraints and finite capacity.
As talks between the two countries continue in an attempt to find a resolution, the impasse remains a significant challenge, especially with Vitol scheduled to start delivering thousands of tons of fuel to Uganda in less than two months.
The question that looms is whether Kenya will make concessions to allow UNOC to use KPC’s facilities to evacuate its fuel, providing a potential pathway to ease the growing tension in regional cooperation.