Energy minister Ruth Nankabirwa welcomes the first petroleum products imported by Unoc at Mombasa Port on July 3, 2024. PHOTO/HANDOUT
A decision by the Kenyan government to slap a $40m (Shs148.3b) bond fee on the company storing freshly imported Uganda’s petroleum products is likely to have a direct negative impact on the end user, sector players said yesterday.
In a shocking turn of events, Energy Minister Ruth Nankabirwa in a three-minute video posted on her official X-platform (formerly Twitter) yesterday asked Ugandans to lower expectations of seeing the pump prices going down even after State-owned Uganda National Oil Company (Unoc) operationalised its sole fuel importation plan with her first consignments arriving last week.
“We expect the prices to be manageable, to be more competitive for as long as we are not pushed to incur costs at the port because as I speak now, I will be going back to Kenya to meet my colleague, because of one thing; they have increased the bond fee at Vitol terminal where we are going to offload our products,” she said.
“When you increase the bond fee to the tune of 40 million US dollars, then that means that you are pushing UNOC to also increase, and therefore, Ugandans are likely not to see a reduced pump price,” the minister added.
She did not state the previous bond fee.
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Unoc’s Head of Legal and Corporate Affairs Peter Muliisa, however, allayed people’s fears, saying the bond fee has not been slapped directly on the products but rather on their storage partner.
“For now, we are still studying the situation to see but the public should be strong; the bond fee is not slapped on our fuel, and we shall have it imported on the earlier planned prices because we have an agreement with the storage company,” he said.
“The minister is going there and that is a great move. We need to understand this abrupt increase is within the law, what informs it, among others, but in this industry we expect more issues to come out but we shall be solving one by one,” he added.
Ms Nankabirwa was in Kenya last Wednesday as Uganda welcomed her first consignment, ship number MT NAVIG8 MARTINEZ, which comprised 80 million litres of petrol that was imported from Jebel-Ali, United Arab Emirates. Another ship number, MT SINBAD, carrying 90 million litres of diesel from Kuwait arrived at Mombasa port the following day. The Wednesday function was also graced by Kenya’s Principal Secretary for the State Department for Petroleum Mohammed Liban who reaffirmed his government’s support towards Unoc.
The energy minister said yesterday that competitive manageable prices will be seen if the tax is dropped.
“So, I am still in negotiations with the Kenyan government to make sure that they don’t force on us this kind of thing. The bond fee at VTTI in Mombasa, that is Vitol where we are storing our products; $40 million is a deterrent. And this is not how the East African Community spirit should operate,” she said,
Adding: “Yes, we will see competitive prices if all factors remain constant. One factor is already not constant, they have increased the bond fee; that must be felt at the end user price…Let Ugandans wish me success in my negotiations so that the bond fees go down.”
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Directly imported petroleum products destine for Uganda arrive in Mombasa, Kenya on July 3, 2024. PHOTO/FILE/HANDOUT
Private oil importers under their umbrella body of the Sustainable Energies and Petroleum Association said Uganda may go back to the old days should the minister fail to secure a win in Kenya.
“The tax will force Unoc to automatically increase the pricing to make profits. The money we have been losing to middlemen, which the government is trying to save, will now go to the Kenyan government and we don’t know how much this affects the whole process, so the prices may remain the same as now or even be worse,” association chairperson Anthony Ogalo said yesterday.
The decision by the government to move away from the Open Tender System (OTS) to Government to Government (GtG) importation system, Mr Ogalo said, will be a waste of time should Kenya refuse to drop the new tax.
If Ms Nankabirwa fails to convince her Kenyan counterparts to drop the tax, the Ugandan government, Mr Ogalo said, will have two options, including paying the bond tax so that the end user feels it or rerouting the 170 million litres of the petroleum products through the longer Tanzanian route, which is also still costly.
To eliminate Kenyan middlemen, who President Museveni said were cheating Ugandans on fuel prices, the government mooted the GtG importation system moving away from OTS.
Under the new GtG arrangement, Unoc signed a five-year partnership with Vitol, a Swiss-based Dutch company, which will be importing the petroleum products from Middle East. It will then hand them to Unoc at Mombasa port, which will then use Kenyan infrastructure to transport the products to Eldoret in western Kenya where trucks from Uganda would then pick from, deliver to Uganda and Unoc sells to private firms before paying Vitol back. Under OTS, where the Kenyan government would float a tender only Kenyan companies were allowed to participate and the one with the lowest bid would win a tender to supply all the petroleum products for both Uganda and Kenya oil companies.
Background
The Petroleum Supply Amendment Act 2023 was passed by Parliament in October and signed into law by President Museveni in November 2023 to empower Unoc as the sole importer.
The plan which was supposed to start in January was delayed as Kenyan authorities took long to grant Uganda all necessary approvals until May 2024.
