Kenyan oil dealers are in a crisis mode after Uganda stuck to its guns and started talks with Tanzania to import its fuel through the Port of Tanga instead of the Port of Mombasa following a spat with Nairobi.

Uganda had initially announced that it was in talks with Tanzania to use the Port of Dar es Salaam to import its fuel after Kenya refused to give it concessions to use its pipeline.

But the road distance between Dar es Salaam and Kampala is 1,715.6km, which is 49.5 percent longer than the distance of 1,147.6km between Mombasa and Kampala.

This shorter distance means that Uganda saves up to $35 per cubic meter by using Mombasa instead of Dar. The Business Daily understands Kenyan State officials – as well as oil executives in both Kenya and Uganda – had earlier believed that Uganda was bluffing about shifting its import route to Tanzania. This is because, besides being cheaper, the Mombasa port is faster and more efficient than the Dar es Salaam port.

But this has changed after it emerged last week that Uganda and Tanzania are locked in talks that will see the former import fuel via the Port of Tanga, which is far closer to Kampala. Tanga is the oldest port in East Africa and is the second largest in Tanzania. While it's far smaller than the Dar and Mombasa ports, Tanzania has been boosting its capacity to handle more cargo in recent years.

“The mood in the industry has been that the Tanzania talk by Uganda was just posturing to push Kenya to give it concessions. But this has changed completely because Uganda is now serious and is close to reaching an agreement with Tanzania to use the Tanga port,” said a source privy to the matter.

“Tanga is not as far (from Kampala) as Dar and therefore the price difference with Mombasa will not be as big. We also understand that Uganda could be given some relief by Tanzania to close the gap,” said the source. Uganda currently buys 90 percent of its fuel via Kenya and 10 percent through Tanzania.

The Petroleum Outlets Association of Kenya (Poak), a lobby for independent oil dealers, says that it would deal a huge blow to local OMCs if Uganda actualises the plan.

“If Uganda indeed moves to the Tanzania route a lot of local oil companies will really suffer because they will lose their biggest market,” said Poak chairman Martin Chomba.

About a third of all fuel imported into Kenya is destined for the transit market, translating to an average of 200 million litres monthly. Mr Chomba said that a lot of especially small dealers rely on this transit market and would likely be forced to close shop.

He further said that Kenya would lose a key source of foreign exchange. Oil dealers are paid for their fuel exports in US dollars. Uganda last year said it imports fuel worth $2 billion through Kenya annually.

“The transit market is a key source of forex for the country and this would really affect dollar inflows,” said Mr Chomba.

State-owned Kenya Pipeline Company (KPC) would also emerge as a major loser. This is because, without nearly a third of the transit market, it would lose millions of shillings in depot tariffs, which are a major source of revenue for KPC. Currently, oil firms evacuating fuel from KPC’s Nairobi fuel depot pay Ksh2,582.72 per cubic metre.

This will further rise to Ksh2,791.85 per cubic metre in July.

The origin of this latest spat between Kenya and Uganda comes following the decision by Kampala last year to designate the State-owned Uganda National Oil Company (Unoc) as the importer of all its fuel for supply to private oil dealers.

Unoc subsequently applied to Kenya’s Energy and Petroleum Regulatory Authority (Epra) in September 2023 to be registered as an OMC in Kenya, which would allow it to import and export fuel like other OMCs and utilize Kenya Pipeline Company’s (KPC) pipeline.

Epra however declined UNOC’s application because UNOC could not substantiate the requisite annual sales volumes of 6.6 million litres of either super petrol, Automotive Gasoil (diesel), and/or Jet A1/kerosene in Kenya.

Uganda has since then sued Kenya at the East African Court of Justice (EACJ)