Uganda, a landlocked East African country, is planning a radical change in the way it sources its petroleum products. Energy Minister Ruth Nankabirwa has announced that the country plans to give Vitol, a global energy trading company, exclusive rights to supply petroleum products, thus ending the current system that passes through neighboring Kenya.
Current system problems
Currently, fuel distribution companies in Uganda purchase their products via affiliated companies in Kenya, who import the fuel on their behalf via the port of Mombasa. This system, which accounts for 90% of Uganda’s fuel imports, exposes the country to supply interruptions and high prices at the pump, according to the Minister of Energy.
Ruth Nankabirwa said in a statement, “UNOC and Vitol Bahrain E.C. have negotiated a five-year contract, and the partner (Vitol) will finance the venture by providing working capital.” According to Central Bank data, Uganda imported $1.6 billion worth of petroleum products in 2022.
Legal changes and outlook
The Ugandan government has approved amendments to the Petroleum Act that will allow Vitol to supply exclusively to the state-owned Uganda National Oil Company (UNOC). UNOC will then sell the products to service station operators. To guarantee security of supply in Uganda, Vitol and UNOC will establish “buffer stocks” in Uganda and neighboring Tanzania, added Nankabirwa.
The legal amendments that will strengthen the agreement were presented to Parliament on Tuesday for approval, the minister said, without specifying a date for the parliamentary vote. A spokesman for the Ministry of Energy said that Vitol and UNOC had already signed the contract, and that the first exclusive deliveries to the state-owned company were scheduled for January.
The use of Kenyan importers had “exposed Uganda to occasional supply vulnerabilities, with Ugandan distribution companies considered secondary in the event of supply disruptions, impacting consumer prices”, said Nankabirwa.
In March, Kenya signed an agreement with Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company, moving from an open tender system where local companies bid to import oil each month. Kenya’s Petroleum and Energy Regulatory Authority did not immediately comment on Uganda’s proposed changes.
Prospects for a Reformed Oil Sector
The reform of Uganda’s petroleum product supply is designed to guarantee a stable supply of fuel, while reducing dependence on imports from Kenya. This initiative will have repercussions for the country’s oil sector and could influence regional energy dynamics.
Uganda’s decision to award Vitol exclusive rights to supply petroleum products marks a major turning point in the country’s energy sector. While the legal changes are being approved, the Ugandan oil industry is gearing up for a reform that could have significant implications for fuel supply and consumer prices in the country.
