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Uganda-Kenya oil war: Museveni drags Kenya to regional court over blocked shipments

Africa
 President William Ruto and his Ugandan counterpart Yoweri Museveni at State House, Entebbe, on October 8, 2015. [DPCS]

Uganda has dragged Kenya to the East African Court of Justice (EACJ) over alleged denial by Nairobi to allow it to transport oil from Mombasa Port to the neighbouring landlocked country.

The unprecedented dispute is likely to strain relations between Kenya and Uganda, which have historically enjoyed close ties.

The dispute will be keenly watched by neighbouring landlocked countries – South Sudan, Rwanda and parts of the Democratic Republic of Congo – all of which meet a majority of fuel requirements by fuel imported through Kenya.

The latest dispute could also jeopardise the trade relations between Kenya and Uganda.

Uganda is Kenya’s largest trading partner, accounting for 11.1 per cent of Kenya’s total exports. Kenya exported goods valued at Sh873.14 billion of which Sh97.16 billion went to Uganda.

More than half of the value of products Kenya sells to Uganda are re-exports of petroleum products that oil marketing companies (OMCs) import through Kenya.

In its legal papers, Uganda reckons Kenya is frustrating its efforts to be the supplier of all imports to the licensed oil marketing companies of petroleum products in the neighbouring country.

Uganda says Nairobi is blocking its efforts to ensure the security of the supply of its petroleum products, improving petroleum product stock holding levels within the country, and contributing to the competitiveness of consumer retail pump prices.

"The Republic of Uganda is a landlocked country and has the right, under the Treaty for the Establishment of the East African Community and the United Nations Convention on the Law of the Sea, to which the Republic of Kenya is a signatory, of access to and from the sea and freedom of transit through the territory of Kenya by all means of transport," says Kampala.

Uganda says its troubles with Nairobi began when it recently made a significant policy change regarding the sourcing, importation, and supply of petroleum products for the Ugandan market. 

It says as a result, it empowered the Uganda National Oil Company (UNOC), a State Corporation fully owned by the Government of Uganda, to be the exclusive importer and supplier of all petroleum products for the country.

To effectively implement this policy, it says it became necessary for Uganda, through UNOC, to transport petroleum products from Kenya to Uganda using the infrastructure of the Kenya Pipeline Company (KPC).

In April 2023, Uganda engaged with the Kenyan authorities to discuss and seek their support in implementing this new policy.

It says the Kenyan authorities, by the relevant treaties and protocols, assured Uganda of their unwavering support.

As part of the process, UNOC initiated discussions with KPC to enter into a Storage and Transportation Agreement. 

However, before finalizing the agreement, UNOC was required by the Kenyan authorities to fulfill certain regulatory requirements. This included obtaining an Import, Export, and Wholesale of Petroleum Products (except LPG) License from the Energy and Petroleum Regulatory Authority (EPRA).

 Ugandan President Yoweri Museveni. [UPPS]

This license would allow UNOC to utilize the petroleum transit infrastructure in Kenya, particularly the Kenya pipeline systems, to facilitate the implementation of the new Ugandan policy. It is at this point that Kenya started frustrating these efforts, says Kampala.

"The actions of EPRA in requiring UNOC to provide several documents and meet a raft of requirements for EPRA to issue the Licence is an action of the State for which the Respondent is responsible," says the Ugandan government. 

The Standard could not immediately reach the Kenya Government spokesman for comment.

However, the Ugandan government said the actions of the Kenyan government and the Kenyan courts run afoul of the EAC spirit of integration.

"The Applicant contends that the actions of EPRA and the Judiciary contravene Articles of the Treaty for the Establishment of the East African Community and Protocol on the Establishment of the East African Community Common Market," it said in the court papers.

The latest dispute puts on the spotlight Kenya’s recent move to get into a fuel import deal with state-owned international oil companies from the Middle East.

The government-to-government deal trumpeted by President William Ruto enables Kenya to import fuel on credit from the Gulf oil companies.

Kenya argued the deal is aimed at taming the weakening of the shilling.

But the controversial deal and its predecessor the Open Tender System are now being viewed by Uganda as being impediments to the region getting cost-effective petroleum products

At the moment, Uganda imports 90 per cent of the fuel consumed in the country through Kenya. The importation is done by OMCs with UNOC currently being dormant in the fuel import space. The Ugandan OMCs access products through their affiliation with Kenyan OMCs.

“The government of Uganda has decided to enhance its involvement in ensuring the security of the supply of petroleum products into the country by mandating the Uganda National Oil Company Ltd to source and supply the petroleum products to the licensed oil marketing companies actively involved in the importation of the products for Uganda,” said Uganda’s Energy and Mining ministry earlier.

UNOC recently entered into a five-year contract with Vitol Bahrain EC a Middle Eastern oil giant, in which Vitol facilitates oil imports.

“To guarantee the security of supply, the partnership has ensured that there will be buffer stocks in Uganda and Tanzania to be called upon should there be supply disruptions to the country.

“The partner has also committed to finance construction of additional capacity in partnership with UNOC of 320 million litres,” it said earlier.

 Kenyan President William Ruto. [Rebecca Nduku, Standard]

The latest suit by Uganda and its earlier concerns on Kenya's government-to-government deal have many wondering whether Kenya may have jumped from a bad system to a worse one.

The Kenyan Ministry of Energy and Petroleum started importing fuel under the government to government system in March last year. At the time the Ministry explained that it was primarily aimed at slowing down the weakening of the shilling.

The deal has been seen to fail to deliver on easing pressure on the local currency. The shilling is now peeping at a low of Sh160 to the US dollar at the moment down from Sh127 in March when the new import system became operational.

The latest court dispute renews Kenya's past rivalries with Uganda.

Recently President Yoweri Museveni said he had shown restraint despite other unnamed nations adopting trade restrictions.

He reminisced about a period when Kenya had imposed trade restrictions by closing its borders.

However, instead of seeking revenge, he opted for dialogue as a means to resolve the conflict.

Likewise, he emphasized that engaging in dialogue with President William Ruto would establish a favourable atmosphere for both nations.

"In the early years of our Government, Mzee Moi, at one time, closed the border, but I rejected the arguments for retaliation," he said in his New Year address.

In 2016, Uganda ditched plans to team up with Kenya to build a pipeline from Hoima in the western part of the country to the Lamu Port.

It opted for the Tanzanian port of Tanga instead. The 1,445km EACOP was expected to cost Sh561 billion ($3.6 billion) - connecting parts of northern Tanzania, and western Uganda’s oil

Previous hostilities between Kenya and Uganda have involved milk and sugar disputes.

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