Uganda Protests as Kenya Charges Ksh5 Billion for its Cheaper Fuel 

There is a standoff between Kenya and Uganda over the imposition of a Ksh5.78 billion fee on fuel imported directly by Uganda via the port of Mombasa.

Uganda has been seeking ways to lower its fuel costs, after withdrawing from Kenya’s G to G deal in November 2023. Nairobi initially denied Kampala a licence to import oil directly without relying on a local oil marketer. 

However, Kampala sued Nairobi at the East African Court of Justice, prompting a concession. The first tanker carrying oil imported by Uganda from Bahrain docked at the port of Mombasa last week, prompting an early celebration in Kampala as it was expected that the pump prices would fall. 

The Ugandan government now says its bid to lower fuel prices is frustrated by Kenya’s move to increase the bond fee at the Vitol Tank Terminal International in Mombasa from $15 million (Ksh1.9 billion) Ksh to $45 million (Ksh5.76 billion). 

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“Kenya has increased the bond fee at Vitol terminal where we are offloading our products and when you increase the bond fee by the tune of 40 million dollars, that means you are pushing Uganda National Oil Company (UNOC) to also increase and Ugandans are not likely to see reduced pump prices.

“We expect prices to be more competitive for as long as we are not pushed to incur extra costs at the port because as we speak now, I am going back to Kenya to meet my colleague, Chirchir (Energy CS Davis Chirchir) because of this one thing,” Uganda's Energy and Mineral Resources Minister Ruth Nankabirwa said.

VTTI, a privately owned terminal in Mombasa, connects to the Kenya Pipeline Company’s network, facilitating fuel access to the Ugandan market and other landlocked countries further west.

Kenya has imposed a significant financial difficulty on Uganda's fuel imports by doubling the bond fee to Ksh5.76 billion after the initiative led by President Yoweri Museveni to have direct oil importation from Mombasa to Uganda. 

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A bond fee is a form of an insurance deposit that an oil company pays when importing fuel meant for transit (often duty-free). This fee ensures that if the fuel is sold locally instead of being transported onward, the company can cover the taxes owed to the revenue authority. 

In this case, this measure helps prevent the Kenya Revenue Authority (KRA) from losing significant tax revenue if the fuel ends up being sold in the local market.

Uganda’s fuel imports have in the past been a source of foreign exchange to Kenya, earning Nairobi about $180 million (Ksh22.5 billion) in payments made to local oil marketers. The loss of the foreign exchange could potentially affect the strength of the Kenyan shilling, further increasing inflation and the cost of living in Kenya. 

Uganda has recently explored alternative routes through Tanzania, which would challenge Kenya's dominance in the regional fuel trade. Despite these efforts, Kenya's infrastructure has remained crucial for Uganda’s fuel imports, maintaining a complex interdependence.

While Uganda continues to seek direct import strategies and diversify its routes, the increased costs could affect regional relations between the two countries.

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