Uganda Poised to Start Importing Its Own Oil Products By July 2

In Summary

• Uganda is set to start importing its own oil, ending Kenya's monopoly on supplying oil to Uganda and Rwanda.
• Two vessels carrying 70,000 tonnes of petroleum products from Bahrain will arrive at Mombasa port on July 2.
• Previously, Kenyan middlemen inflated oil prices, causing financial loss to Uganda.
• Accusations by President Museveni led to negotiations and a resolution, allowing Uganda to import directly through Mombasa.
• Uganda will use Kenyan facilities for storage and transport, paying fees, but will reduce Kenya's earnings from the middleman arrangement.
• Uganda chose Kenya over Tanzania for its oil imports due to proximity and existing investments, though it will keep the Tanzanian route active.
• Uganda plans to start domestic oil production by the fourth quarter of 2025, with significant oil reserves discovered 18 years ago.

KAMPALA, UGANDA- Two vessels carrying oil imported by Uganda are expected to dock at the Mombasa port next week on July 2, effectively ending Kenya's monopoly in oil imports. Previously, Kenyan oil marketing companies would purchase oil from producers, mainly in the Middle East, and then sell it to Uganda and Rwanda. But now things have changed, with Uganda managing to avoid this middleman arrangement with Kenya.

In November 2023, Uganda's President Yoweri Museveni accused Kenya of involving dishonest people in the oil trade. According to Mr. Museveni, the middlemen had inflated oil prices by up to 58%, consequently causing financial loss to Uganda. At the time, Kenya had changed its method of importing oil in efforts to boost its dollar reserves. Instead of oil marketing companies shipping oil for domestic and regional use, Kenya had entered into a government-to-government deal with Saudi Arabia for oil supply. However, Mr. Museveni suggested that the deal was hijacked by brokers who are always on the lookout to exploit his country.

Uganda thereafter began talks with Tanzania to import oil through Dar es Salaam. Mr. Museveni's remarks about the Kenyan middlemen sparked tensions, prompting Kenya's President Ruto to visit Uganda in February 2024 to resolve the standoff. In March, Kenya granted the Uganda National Oil Company a long-sought license to import its oil consignment through the port of Mombasa.

Speaking to the media, Uganda's Energy Ministry said delayed negotiations with Kenya adversely affected its plans to import oil in April. Uganda's first shipment is scheduled to arrive in Mombasa on July 2, with the vessels carrying 70,000 tonnes of petroleum products from Bahrain. Upon docking, the oil will be briefly stored at the Kipevu Oil Terminal and thereafter transported to Uganda using the Kenya Pipeline Company facilities. This arrangement will slightly affect Kenya's earnings from imported fuel, although Uganda will still pay Kenya for storage and pipeline use.

Kenya says it has the capacity to handle four oil vessels simultaneously. Additionally, it can store refined petroleum of 254 million liters at any given time. Uganda chose Kenya against Tanzania because of proximity and Uganda's investment in Kenya's port. Uganda, which receives 90% of its fuel through Kenya, however, says it will keep its Tanzanian route active.

According to President Museveni, Uganda imports an average of 2.5 billion liters of oil per year, costing about 2 billion US dollars. Museveni previously said the new arrangement of "buying oil from refineries abroad" would do away with middleman costs. Until now, Uganda has been paying Kenya an average of $180 million for oil monthly. Uganda, which has a 30 million-liter capacity fuel storage facility in the eastern city of Jinja, is planning to start producing oil in the fourth quarter of 2025.

Eighteen years ago, Uganda announced it had discovered oil reserves in the Albertine region, although production has been marred by challenges. On average, a liter of fuel in Uganda now costs below $1.5, an equivalent of UGX 5000.