- By Basillioh Rukanga
- BBC News, Nairobi
A bitter dispute over fuel supplies has erupted between Kenya and its neighbor Uganda, with Uganda’s leader saying his country is being “cheated” by “parasites” and middlemen.
For decades, Kenya imported oil and sold it to its East African neighbors – but its role as the region’s main fuel gateway is now in jeopardy.
It all started earlier this month when Ugandan President Yoweri Museveni accused Kenyan middlemen of inflating oil prices by up to 58%, causing “huge loss” to his country.
He also hit out at “internal parasites” for “cheating” Uganda by failing to intervene since prices started to rise earlier in the year.
Uganda has for years imported 90% of its fuel from Kenyan oil marketing companies, who sell it to their Ugandan subsidiaries – the rest is sourced through Tanzania.
Mr Museveni’s attack came as Uganda’s parliament passed a resolution to stop it.
His government has made it clear that it wants more autonomy over future oil deals.
“Kenya has decided for decades what petroleum products Uganda buys, when, from where, how much, who buys and at what price,” explained Uganda’s Energy Minister Ruth Nankabirwa.
However, Kenyan oil marketing companies have put the finger of blame for the recent high prices on the Kenyan government.
In the past, a tender was held by various Kenyan companies. The company with the winning bid would import the oil on behalf of the others. It was a payment transaction in US dollars.
Most of Uganda’s oil traffic arrives at the port of Mombasa, Kenya
But in March, the Kenyan government stepped in due to a shortage of US dollars in the country, which led to difficulties for all businesses importing goods as banks issued dollar notes.
The government unilaterally negotiated a price with international oil companies to supply oil on credit for both the local market and export.
This arrangement means payments to international suppliers are delayed by six months.
Under the agreement, local customers of Kenyan oil marketing companies pay for their supplies in Kenyan shillings, but those in neighboring countries pay in dollars.
All money is held in a high-interest-bearing account for six months before the account is paid off – easing the burden of running out of dollars.
John Njogu, CEO of the Kenya Petroleum Sales Association, describes it as a “line of credit” and says such an arrangement makes oil more expensive for buyers.
He told the BBC that Uganda was justified in rejecting it as it did not have a dollar shortage problem and should not be expected to pay more.
With Uganda now pulling out, Kenya will find its dollar shortage problem exacerbated – as Mr Njogu says Uganda pays $180m (£143m) a month to Kenyan companies for oil.
The deal was also attacked by Kenyan opposition leader Raila Odinga, who described it as a “mega scam” – suggesting Kenyans are being made to pay higher prices while others, including some oil marketing companies, are profiting.
He wants the Ethics and Anti-Corruption Commission of Kenya (EACC) to investigate the terms of the deal, which he said should be made public.
“The middlemen President Museveni is talking about are Kenyan government officials,” he said.
But Kenya’s Energy Minister Davis Churcher defended the credit deal, telling lawmakers it helped cushion Kenyans from escalating fuel prices and external shocks.
Without it, prices could be even higher, especially given the currency’s depreciation against the dollar, he said.
This war of words coincided with a mysterious scandal in Kenya over the importation of 100,000 tonnes of oil worth $110 million – the ownership of which has been disputed and the case is now in court.
The lawyer for the Kenyan businesswoman involved claims she was kidnapped for several days by those who wanted to “steal” the cargo.
The Kenyan government denies involvement and has said her company does not have a license.
It’s not just Kenyan consumers and the Ugandan president who are unhappy. Burundi, the Democratic Republic of the Congo, Rwanda and South Sudan also receive a significant amount of their petroleum products through Kenya.
“The region is moaning,” Dzombo Mbaru, chief executive of Kenyan oil company Mardin Energy, told the BBC.
He says it is not just the new deal that is to blame, suggesting that Kenya’s taxes on all petroleum products could be a factor and a “critical review” was needed.
“The region is not sleeping and has lined up infrastructure projects to manage our sovereignty. It has options and in the long run Kenya will lose out big time,” warns Mr Mbaru.
Uganda wants to start producing its own oil in a few years
Uganda has already said it has reached an agreement with Vitol Bahrain to finance the Uganda National Oil Company’s drive to procure and supply oil. It has also announced that it is going to maintain its fuel reserves in Tanzania.
The infrastructure in Tanzania is not as developed as in Kenya, but with new partnerships this could change, says Mr Mbaru.
With Uganda soon to start producing its own oil and planning to build a refinery, it will be able to provide “competitive petroleum products, without [costs] caused by intermediaries’ within a few years in East Africa, he adds.
For Mr Njogu, Uganda’s move is a necessary wake-up call for Kenya’s oil importing industry: “We need to be more conscious of being competitive and be more aggressive to win business.”
But it’s a painful lesson that will seriously affect Kenya’s economy in the foreseeable future, he says.
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