Why Uganda is Entering an Exclusive Fuel Supply Deal with Vitol
11.02.2023 By Tank Terminals - NEWS

November 2, 2023 [Uganda Business News] – Uganda’s decision to give Vitol, the world’s largest private oil trader, exclusive rights to supply its fuel was prompted by its frustration at being kept in the dark about a deal between the Kenyan government and two Gulf states to supply fuel to Kenya.

 

During recent talks with fuel suppliers on the Vitol deal, energy ministry officials said the government was prompted by concerns that Kenya’s March agreement with Saudi Arabia and the United Arab Emirates could jeopardise fuel supplies and lead to a spike in fuel prices at petrol stations.

The green light to negotiate a new fuel import deal with Vitol was given by President Museveni in February, leading to talks led by the Uganda National Oil Company, according to Kenya’s Business Daily.

“Changes by the government of Kenya in April 2023 to enter into government-to-government importation structures with the government of UAE and the Kingdom of Saudi Arabia to manage the challenges they were facing were done without consultation with Uganda whether to their advantage or not,” the Business Daily said Thursday, quoting minutes of the meeting.

Ruth Nankabirwa, the minister of energy and mineral development, tabled a bill Wednesday to give the state-owned National Oil Company the sole mandate to import petroleum products. Unoc would then sell the products to oil and petroleum product dealers for onward sale to the final consumer.

Unoc plans to import fuel products via an agreement with Vitol.

“The existing law does not empower the Uganda National Oil Company to supply all imports of petroleum products to licensed oil marketing companies for the Ugandan market. This gap in the Petroleum Supply Act has threatened the security of supply of petroleum products in Uganda,” Ms Nankabirwa said.

All petroleum products used and traded in Uganda are imported. About 90 per cent of these imports enter the country through the port of Mombasa in Kenya, with the rest coming through the port of Dar-es-Salaam in Tanzania, according to Ms Nankabirwa.

The minutes reveal that the government plans to begin importing fuel products through Vitol’s Bahrain operation in January. According to the Business Daily, the national oil company and Vitol have negotiated a five-year contract, with Vitol agreeing to cover its own costs and guarantee “competitive” prices.

Kenya’s deal with the UAE and Saudi Arabia was motivated by concerns about stemming the depreciation of its currency; it had previously been spending about $500 million a month on unplanned fuel purchases. The country imports 40 per cent of its fuel, including from Uganda.

Business Daily notes that Uganda’s action could affect diplomatic relations between the two neighbours and eat into the revenue Kenya could have earned from exporting petroleum products to the Democratic Republic of Congo and South Sudan.

Of course it probably will. But that should have been as much a concern at the beginning of the year, when Kenya was negotiating its secret deals, as it is now.

 

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