Uganda cuts flow of fuel from Kenya

Uganda’s energy sector is set to reduce its reliance on Kenya as the major source of petroleum products in what could lead to lose of business for local oil marketing companies.

Currently, over 90 per cent of Uganda’s petroleum products are procured through the Port of Mombasa, while the remainder comes through the Port of Dar es Salaam.

However, Uganda has long grappled with supply vulnerabilities and frequent disruptions in the Kenyan supply chain, prompting the government to seek alternative solutions to ensure energy security and stable retail pump prices.

The situation in Uganda was compounded by the fact that Ugandan Oil Marketing Companies (OMCs) were considered secondary customers during supply disruptions, resulting in a series of challenges.

This secondary status, according to officials, led to the acquisition of relatively costly petroleum products, which, in turn, had a direct impact on retail pump prices. To address these issues, Uganda has taken a decisive step towards self-reliance in its petroleum supply chain.

Changes in fuel law

“Despite the competitive nature of the Open Tender System in Kenya and its relatively normal supplies, it exposed Uganda to occasional supply vulnerabilities where the Uganda Oil Marketing Companies were considered secondary,” said Uganda minister for energy Ruth Nkabirwa.

On October 23rd, 2023, the Ugandan Cabinet approved amendments to the Petroleum Supply Act of 2003 through the Petroleum Supply (Amendment) Bill, 2023.

The bill has now been transmitted to Parliament for approval. Once enacted, this legislative change will mandate the Uganda National Oil Company Limited (UNOC) to assume the role of sourcing and supplying petroleum products to the licensed Oil Marketing Companies operating in Uganda.

In a move that underscores Uganda’s commitment to securing a reliable and cost-effective supply chain, UNOC has entered into a strategic partnership with Vitol Bahrain E.C. The two companies have negotiated a five-year contract, wherein Vitol Bahrain will provide a working capital facility backed by its balance sheet.

This partnership is expected to ensure competitive pricing of petroleum products in the Ugandan market, offering much-needed stability and cost-effectiveness for consumers.

For Kenya, Uganda’s decision to diversify its petroleum supply sources represents a notable loss. In an effort to guarantee the security of supply, Uganda has announced that it will maintain buffer stocks within its own borders and in neighboring Tanzania, not Kenya.

Supply disruptions

This move is a clear signal of Uganda’s intention to reduce its dependence on Kenya and ensure that it can swiftly respond to any supply disruptions without relying on its East African neighbour.

Uganda’s decision to shift away from reliance on Kenya for petroleum products signals a bold step towards energy security and economic stability.

By enacting changes to its petroleum supply laws, entering into a partnership with a major international player like Vitol Bahrain, and establishing buffer stocks in strategic locations, Uganda is taking proactive measures to insulate itself from the supply vulnerabilities that have long plagued the nation’s energy sector.

In doing so, Uganda aims to enhance its energy security and ensure that its consumers benefit from competitive pricing and a stable supply of petroleum products.