Uganda Ditches Kenya for Tanzania in Oil Trade Row

How a dispute over a fuel deal could cost Kenya millions of dollars and threaten its oil infrastructure

by Motoni Olodun

Uganda has decided to import its oil through Tanzania instead of Kenya, following a long-standing dispute over a government-to-government fuel deal. The move could cost Kenya millions of dollars in lost revenue and threaten its investment in major oil infrastructure.

Uganda is Kenya’s top export market for imported oil products, consuming about 900 million liters of petroleum products per month through the port of Mombasa. However, Uganda has been unhappy with Kenya’s arrangement with two Gulf nations, which was made without consulting its neighbor. Uganda claims that the deal exposes it to high pump prices and undermines its national oil company, Uganda National Oil Company (Unoc).

Unoc had sought to register in Kenya to facilitate its imports via Mombasa but faced legal and bureaucratic hurdles. Uganda’s Energy Minister Ruth Nankabirwa said that Kenya’s President William Ruto had supported the move, but some Kenyan officials had frustrated it.

“You can’t sit there and be at the mercy of one person. So far, I have met the President of Tanzania. My president sent me as an envoy and we are in discussions,” she told reporters in Kampala on Tuesday.

She added that Tanzania had offered to waive some taxes for Uganda to do business through its port of Dar es Salaam, which could be more expensive due to the logistics involved.

According to data from the Kenya National Bureau of Statistics, Kenya exported oil products worth $200 million to Uganda between October and November 2023, down from $400 million in the same period in 2022. This represents a 50% drop in revenue and a loss of market share for Kenya.

The decision by Uganda also puts at risk Kenya’s investment of $385 million in the Kipevu Oil Terminal 2 (KOT2) in Mombasa, which was opened last year, and $170 million in the fuel jetty in Kisumu. The facilities were built to increase the capacity and efficiency of handling transit petroleum products to Uganda, Rwanda, and Burundi.

Kenya and Uganda have had a long history of cooperation and competition in the oil sector, dating back to the colonial era. The two countries have also been involved in joint projects such as the East African Crude Oil Pipeline (EACOP), which is expected to transport oil from Uganda’s oil fields to the Tanzanian coast.

However, Uganda has also pursued its initiatives to reduce its dependence on Kenya and other external sources for its fuel needs. Uganda has licensed a Dubai firm, Alpha MBM Investments Llc, to build a $4 billion refinery to process some of its crude oil domestically. It has also granted a license to China National Offshore Oil Corporation to produce liquefied petroleum gas at a plant in the Kingfisher development area.

Analysts say that Uganda’s move to shift its oil imports to Tanzania could have significant implications for the region’s energy security and economic integration. It could also affect the exchange rates between the two countries, as Kenya relies on the Ugandan market for its foreign currency earnings.

However, some experts also point out that the situation could create an opportunity for dialogue and negotiation between the two countries, as well as other stakeholders in the region. They argue that a harmonized and transparent framework for oil trade and cooperation is needed to ensure mutual benefits and stability.

Source: The East African

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