Uganda Starts Direct Oil Import After Fallout With Kenya in G to G Deal

Uganda has begun directly importing oil after a disagreement with Kenya In a move that could reshape East Africa's fuel trade landscape. 

This follows a five-year government-to-government (G to G) deal signed by Uganda National Oil Company (UNOC) with Vitol Bahrain, a major international oil trader.

The first shipment docked at the port of Mombasa on Wednesday, July 3, and is expected to arrive in Kampala this week, marking a significant shift from Uganda's previous reliance on Kenya for fuel imports. 

Uganda has long been dependent on Kenya for its fuel imports. This is because Uganda is a landlocked country and does not have its own port facilities. As a result, Uganda has to rely on Kenya's Mombasa port to import fuel, with Kenyan transporters profiting from the fuel movement across the border.

Initially, Uganda would import its oil through Kenyan oil marketing companies. However, in 2023, Ugandan President Yoweri Museveni complained that middlemen in Kenyan were inflating oil prices by up to 58%, resulting in a "huge loss" for Uganda. 

Uganda subsequently announced that it would no longer be importing oil from Kenyan oil marketers who now purchase it under the deal between the Kenyan government and several state-owned oil companies in the Middle East, dubbed the G to G deal. 

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Uganda's plan to import fuel directly from Vitol Bahrain was met with resistance from Kenya. Kenya denied a license to Uganda's government-owned oil marketer to operate in Kenya.

This led to a lawsuit where Uganda sued Kenya at the East African Court of Justice (EACJ).  Uganda argued that Kenya broke an agreement to support their quest to import fuel directly, a claim that Kenya disputed. 

Kenya maintained that Uganda's oil marketer did not meet the licensing requirements and did not have the financial resources or experience to operate in Kenya.

Uganda had reportedly sought to diversify its fuel import routes by utilizing ports in Tanzania, a move that would challenge Kenya's dominance in regional fuel trade. 

Kenya Retains Role Despite Shift

While Uganda embarks on direct imports, Kenya will not be entirely cut out of the equation. Ugandan officials have stated they will continue to utilize Kenyan storage facilities and pipelines to transport the imported fuel. Additionally, both countries are planning to extend the existing pipeline from Mombasa to Kampala, further solidifying infrastructure ties.

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Impact on Fuel Prices and Regional Relations

The long-term impact of this move on fuel prices in Uganda remains unclear. However, the increased competition in the fuel import sector could potentially lead to lower prices for Ugandan consumers.

 The impact on regional relations is also a topic of discussion. While the economic aspects are being addressed, the underlying tensions between Uganda and Kenya over import routes would need to be resolved to ensure smooth trade flows in the future.

Looking Ahead

Uganda's direct oil import deal with Vitol Bahrain marks a turning point in East Africa's fuel trade. The move also results in a major dollar shortage in Kenya as Uganda would previously spend about $180 million per month (about Ksh22.5 billion per month) in payment for the fuel supplied through Kenyan oil marketing companies. 

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