Kenya adopted a government-to-government system that has relegated Ugandan oil marketing companies to secondary status, leading to higher fuel costs.
The Government of Uganda is taking steps to reduce its reliance on Kenya in sourcing external petroleum products.
In a press release seen by the Nairobi Law Monthly, the landlocked East African country indicated that the Uganda National Oil Company Limited (UNOC) is taking on a more active role in sourcing and supplying petroleum products to licenced Oil Marketing Companies (OMCs) responsible for imports.
Uganda’s efforts to bolster energy security have prompted an amendment to the Petroleum Supply Act, 2003, via the Petroleum Supply (Amendment) Bill, 2023. The Cabinet approved this bill on Monday, October 23, 2023, and it is currently awaiting consideration by the Parliament of Uganda for enactment into law.
Currently, Uganda imports over 90% of its petroleum products, with the majority arriving through the Mombasa port in Kenya. The rest is transported via the Dar-es-Salaam port in Tanzania. Previously, licensed Ugandan Oil Marketing Companies (OMCs) managed their import allocations through affiliated Kenyan OMCs participating in the Kenyan and Tanzanian import structures.
However, due to the change in Kenya’s petroleum products import system in April 2023, Uganda’s vulnerability to supply disruptions increased. Kenya adopted a government-to-government importation system with the United Arab Emirates and the Kingdom of Saudi Arabia.
Although this change was meant to address Kenya’s challenges, Uganda noted that it often relegated their OMCs to secondary status, leading to higher costs and consequently impacting retail fuel prices in Uganda.
Implications of the Amendment
UNOC will take on the critical role of sourcing and supplying these products directly to licenced OMCs responsible for imports.
In partnership with Vitol Bahrain E.C., UNOC has secured a five-year contract, ensuring competitive pricing and maintaining buffer stocks in Uganda and Tanzania. These stocks are to be used in case of supply disruptions.
The collaboration with Vitol, a major player in the global energy trading sector, aims to enhance UNOC’s capabilities in managing petroleum products. Additionally, the partnership is expected to empower UNOC to take charge of petroleum products produced by the Uganda refinery.
Regional stability & economic growth
The Ugandan government said that it is currently engaged in discussions with Kenya to ensure a seamless implementation of these policy changes. Both nations share a commitment to regional stability and economic growth.
These proposed legislative amendments aim to enhance Uganda’s control over its petroleum product supply chain, reduce costs, and bolster the country’s energy security.