(4 Minutes Read)
Kenyan oil dealers are in a crisis mode after Uganda stuck to its guns and started talks with Tanzania to import its fuel through the Port of Tanga instead of the Port of Mombasa following a spat with Nairobi. Uganda has for years imported 90% of its fuel from Kenyan oil marketing companies, which sell it to their Ugandan subsidiaries – the rest is procured through Tanzania.
For decades, Kenya has imported oil and sold it on to its East African neighbours – but its role as the main gateway for supplying fuel to the region is now challenged. It all came to a head earlier this month when Ugandan President Yoweri Museveni accused Kenyan middlemen of inflating oil prices by up to 58%, causing a “huge loss” for his country.
Kenyan State officials as well as oil executives in both Kenya and Uganda had earlier believed that Uganda was bluffing about shifting its import route to Tanzania. This is because, besides being cheaper, the Mombasa port is faster and more efficient than the Dar es Salaam port.
Uganda was initially in talks with Tanzania to use the Port of Dar es Salaam to import its fuel after Kenya refused to give it concessions to use its pipeline. However, the road distance between Dar es Salaam port and Kampala is 49.5 percent longer than the distance between Mombasa and Kampala. This shorter distance means that Uganda saves up to USD 35 per cubic meter by using Mombasa instead of Dar. besides being cheaper, the Mombasa port is faster and more efficient than the Dar es Salaam port.
But this has changed after it emerged last week that Uganda and Tanzania are locked in talks that will see the former import fuel via the Port of Tanga, which is far closer to Kampala. Tanga is the oldest port in East Africa and is the second largest in Tanzania. While it’s far smaller than the Dar and Mombasa ports, Tanzania has been boosting its capacity to handle more cargo in recent years.
But Kenya’s oil marketing companies have pointed the finger of blame for the recent high prices at the Kenyan government. In the past, a tendering process by the various Kenyan companies was held. The firm with the winning bid would import the oil on behalf of the others. It was a pay-as-you-go operation transacted in US dollars. But in March, the Kenyan government stepped in because of the country’s shortage of US dollars, which led to difficulties for all businesses importing goods as banks were rationing dollars. The government unilaterally negotiated a price with international oil companies to supply oil on credit for both the local and export markets. This arrangement means payments to the international suppliers are delayed by six months. Under the deal, Kenyan oil marketing companies’ local customers pay for their supplies in Kenyan shillings, but those in neighbouring countries pay in dollars. All the money is kept in a high-interest-earning account for six months before the bill is settled – easing the dollar-shortage burden.
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Uganda has reached a deal with Vitol Bahrain to finance the Ugandan National Oil Company’s move to source and supply oil way back in November. It also announced that it is to keep its reserve fuel stocks in Tanzania. The infrastructure in Tanzania is not as developed as in Kenya, but with new partnerships, this can change, says Dzombo Mbaru, the CEO of Kenyan oil firm Mardin Energy. Uganda is soon to start producing its oil and planning to build a refinery that will be able to provide competitive petroleum products within a few years to East Africa, he adds.
