Yesterday Parliament passed the bill to grant UNOC right to supply fuel into the country. There has been a lot of debate some based on lack of information. As a former Commissioner Customs, am fully aware of the historical dynamics of inbound fuel into EAC over the years. Fuel is a very sensitive and important commodity in an economy. It drives military operations, air planes, industries, and mobility transportation. Any country’s first strategic focus on fuel is to ensure its availability.
Fuel prices are a function of product cost, transpiration and taxes. Over the years fuel into the EAC was cleared through the OTS (Open Tender System) coordinated by the Ministry in Charge of Petroleum in Kenya.
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Ugandan participants in the OTS used to pay the nominated Oil Marketing Companies (OMCs) in Kenya to obtain their share of imports into Uganda.
The premiums were sometimes as low as 35$ /MT…………..
In March 2023, Kenya ditched the OTS arrangement by entering into a G to G arrangement with Gulf companies to supply all fuel in the region (including Uganda), at very high premiums eg 118$ per MT for AGO (Automotive Gas Oil) and 97.5$ for PMS (Premium Motor Spirit).
They also negotiated a 6 months credit period in which GOK would pay the Gulf companies after supply.
The 6 months period was to ease the current forex challenges in Kenya and our Ugandan OMCs would not be allowed to take the advantage, they would be required to pay upfront for the fuel so dollars would remain in Kenya for 6months.
This unilateral decision in my opinion wasn’t in the good spirit, Uganda should have been involved in negotiations. You cannot earn from Ugandas fuel volumes on high premiums at a disadvantage of Uganda.
There HE. President Yoweri Kaguta Museveni made the right decision, since we have been ditched, let’s go on our own.
Let’s empower UNOC to bring in the fuel. Challenge though is that UNOC is not effectively capitalized, they would need 100m dollars perhaps for starters to order directly from refineries. In the GOvts wisdom they looked for Vitol (don’t ask me about the merits or demerits), I focus on the principle.
Vitol or any other supplier will ship the fuel up to Mombasa and pass on the tittle to UNOC, from whom the Ugandan OMCs will buy fuel according to their nominated volumes.
Each OMC will pay for their volumes and clear it’s fuel. Usually Uganda consumes about 200m liters of fuel pm. The region has been receiving about 6 fuel ships at Mombasa monthly as regional fuel cargo. Uganda will now receive its 2 ships.
Dynamics at play:
– middlemen have been removed, they are not happy. Will they attempt to frustrate perhaps not bse Uganda is too big to be bullied! However UNOC doesn’t own any logistical infrastructure facilities in Kenya to clear the fuel. Fuel has to be pumped at Mombasa and cleared thru the Kenyan Pipeline System (KPC), so we must have negotiate with Kenya.
To ensure efficient clearance and flow of our fuel thru Mombasa and KPC. Any delays or frustrations will take away the advantage we are trying to achieve.
Kenya is still the most viable route for our fuel so we cannot afford to engage in mega phone diplomacy, but pragmatic dialogue.
Our private sector OMCs, should they celebrate or not? I think it’s a mixed reaction. Some may have cash flow challenges, they used to clear from 6 ships so the cash requirements are spread, now they must clear twice. So they have to rearrange their financing mechanisms.
Shall we have security of supply, perhaps yes, bse Kenya cannot localize our fuel once it arrives at the port.
But suppose our fuel delays to arrive? How do we mitigate shortage? Govt thru UNOC must negotiate a fuel stock exchange and replacement mechanism with our neighbors..our needs can be filled with fuel in the system and it’s reimbursed when ours arrive. Besides there must be serious regulation and performance measures with the supplier (UNOCs Vitol) to ensure continuous reliability, the margin of error for performance shortages should be close to zero!
The company must stick to the negotiated premiums (which are much lower than Kenya’s)..or even aim to reduce them lower. Ultimately the Govt should strengthen UNOC and capitalize it to give it a capacity to buy fuel directly from refineries. Govt also must ensure it’s strengthens and streamlines regulation.
Currently the down and midstream are regulated by PAU Petroleum Authority of Uganda, the Upstream by a Department in the Ministry of Energy and MD, in my option we should have one regulator for the entire chain. UNOC should focus on its role, resource it’s staff and up its game. Fuel game is tricky, it’s riddled with deep interests, Govt taking control in the interest of its people should be plausible….however Govt must mitigate potential challenges along the way thru bilateral engagements with the Government of Kenya, experts and private sector.
