The Uganda National Oil Company (Unoc) has commenced the distribution of petroleum products to oil marketing companies (OMCs) in Tanzania and Uganda, signaling a new phase in its operations as it gears up for a comprehensive import agreement with Vitol Bahrain. This move represents a significant shift in Uganda’s fuel supply chain, which has traditionally been dependent on Kenyan OMCs.

Unoc’s current strategy involves offering these petroleum products in limited quantities to subsidiaries in the aforementioned countries, indicating a preliminary market assessment phase. The upcoming five-year contract with Vitol Bahrain is set to alter the longstanding reliance on Kenyan suppliers, a relationship that has recently been strained due to Kenya’s credit-based fuel import deal with Gulf oil majors—a deal that Uganda contends has contributed to inflated fuel prices.

The transition to direct imports from Vitol Bahrain is expected to disrupt the existing market structure, as Unoc has typically provided fuel to state-owned entities but now aims to expand its sales to private OMCs. Vitol, an oil and gas company with roots in the Netherlands and headquartered in Switzerland, is a key industry player, with partial ownership of the Fujairah Refinery in the UAE.

Kenya’s agreement with Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company, initiated in April of the previous year and extended until December 2024, was designed to mitigate dollar demand and bolster the Kenyan shilling. Conversely, Uganda’s annual import of roughly 2.5 billion liters of petroleum, valued at $2 billion, has been predominantly managed by the Kenya Pipeline Company (KPC), which handles over 90% of the imports.

The forthcoming Unoc-Vitol Bahrain deal is poised to significantly affect KPC’s revenue from transit fuel, which accounts for a substantial portion of the dollars needed for Kenya’s fuel imports under its government-to-government deal.

Unoc’s initial attempt to begin imports under the new arrangement was hindered by a licensing issue in Kenya. The Energy and Petroleum Regulatory Authority (Epra) withheld the necessary license for Unoc to access KPC’s storage and transport network, citing Unoc’s non-compliance with legal requirements, such as the absence of a licensed petroleum depot and at least five retail stations in Kenya.

This development highlights the intricate relationships and dependencies within East Africa’s energy sector and the potential effects of changing alliances and trade agreements on regional economies.