Kenya Bows to Uganda’s Pressure in Oil Importation Fued
Kenya is set to grant a license to the Uganda National Oil Company (UNOC), resolving a prolonged dispute that escalated to the regional court and strained diplomatic relations between the two nations.
On Wednesday, Energy Cabinet Secretary Davis Chirchir stated that efforts are underway to grant Unoc authorization to directly import fuel via the Kenya Pipeline Company (KPC).
“You will see Unoc getting a license and then we will see how to work together because usage of our pipeline is an opportunity for us,” Mr Chirchir said.
“They will employ Kenya Pipeline Company’s infrastructure so there will be no loss of opportunity, the transporter will remain KPC. We are working closely with Uganda to resolve the challenge.”
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Chirchir’s disclosures emerged shortly after a lawsuit aimed at halting the licensing of Unoc was retracted at the High Court in Machakos. Insider reports suggest that the license is expected to be granted next month. This issuance could potentially resolve the conflict and enable Unoc to procure fuel from Vitol Bahrain.
In December of last year, Uganda took its case to the regional court to secure the permit enabling the utilization of KPC’s infrastructure. While the outcome of the case is still pending, granting the license is anticipated to resolve the matter at the regional court, thereby preventing a potential diplomatic dispute between the two nations.
Unoc’s decision to directly import fuel from Vitol Bahrain will adversely affect the earnings of domestic oil marketing firms that have traditionally serviced Uganda for many years. While Unoc has historically supplied fuel mainly to state-owned entities in Uganda, it is now poised to enter the market of selling to private oil marketers.
Uganda initiated its arrangements for direct imports through Unoc several months following Kenya’s announcement of a deal with major Gulf partners to import fuel with a 180-day credit period. This move aimed to alleviate the demand for dollars and support the stability of the shilling.
In April of the preceding year, Kenya initiated a government-supported agreement with Saudi Aramco, the Abu Dhabi National Oil Corporation, and the Emirates National Oil Company.
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The agreement, initially scheduled to terminate by the conclusion of the previous year, has been prolonged until December 2024. Uganda typically brings in around 2.5 billion liters of petroleum each year, amounting to approximately $2 billion (equivalent to Ksh261.98 billion). KPC and domestic oil companies manage the transportation of at least 90 percent of this cargo.
However, although Unoc’s arrival in Kenya as a primary importer may negatively impact local oil companies, KPC will not experience any decline in revenue since the Ugandan company will still utilize its storage facilities and transportation infrastructure to deliver the fuel to the neighboring nation.
Less than a week after petitioners withdrew their case seeking to prevent the Energy and Petroleum Regulatory Authority (EPRA) from granting a license to Unoc, assurances to license Unoc were provided. The petitioners, including Royani Energy Limited, Acacia Ridge Construction, and two individuals, withdrew their case at the Machakos High Court on March 22.
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“The undersigned parties wish to record a consent as follows, that the petition is hereby withdrawn,” said the ruling issued on March 22.
Unoc had planned to commence direct importation by January, but it was compelled to postpone the rollout indefinitely when it couldn’t secure a license from Epra.
The energy sector regulator in Kenya refused due to Unoc’s failure to meet legal requirements. EPRA pointed out Unoc’s inability to demonstrate ownership of a licensed petroleum depot and a minimum of five retail stations in Kenya.
Uganda opted for Tanzania as a temporary fix, enabling Unoc to import fuel directly, as Kenya refused access to the Mombasa port and KPC’s facilities for the State oil company.
Unoc has been providing cargo sourced from Vito Bahrain via the port of Dar es Salaam to oil companies in Tanzania and Uganda as it prepares to initiate direct imports.
Kenya Bows to Uganda’s Pressure in Oil Importation Fued
