The pipeline truth: How Museveni outfoxed Ruto into ceding control of KPC

The fears that many Kenyans had expressed about Kenya’s strategic assets being controlled by foreigners may have come to pass after the completion of the Kenya Pipeline Company’s Initial Public Offer, which saw Uganda emerge as a key shareholder. 

Uganda, through its national oil company, will now own 20.15 per cent of KPC, a significant stake in the entity that runs the fuel transport and distribution infrastructure, ensuring security of fuel supply in Kenya.

The Ugandans will also have control of the firm after successfully negotiating for two seats at KPC’s board of directors, as well as veto powers in the appointment of the firm’s chief executive officer. Observers across the board say Uganda did not just buy a stake but control of KPC, and that Kenya has handed its energy independence to a foreign entity. 

The seeming takeover of KPC by Uganda is unlike the opaque offshore investors that analysts had earlier warned would be used by the local business and political elite to gain control of the strategic entity. 

The control by Uganda is against a background of the strained relationship between Kenya and Uganda in the past over the import of its fuel through the Kenyan route, with Uganda trying to assert energy dependence. With two board seats and immense powers over the hiring of the KPC boss as well as the determination of the direction that pipeline tariffs take, Uganda will be a key player in Kenya’s fuel transportation and distribution. It is to be seen whether past hostilities will be contained or take an even more confrontational dimension.

“Giving Uganda veto power over Kenya’s energy plans at a time of serious geopolitical risk is deeply concerning,” said Ken Gichinga, chief economist at Mentoria Economics. He added that the government appeared too willing to cede ground to make the IPO a success, even in instances where it appears to have compromised Kenya’s energy sovereignty.  

He noted that in privatising critical assets, the government should also consider factors such as fuel security, supply, and the impact that this has on the economy, and not lean entirely on transaction advisers, driven by the need to meet their target and earn a bonus. “There was a very heavy push to have participation to the point that these concessions were made. The primary concern is that even as we move towards the commercialisation of infrastructure, the profit motive can be so strong that issues of national security may be overlooked.” He added that in disposing of national assets, Kenya needs to have a layer of security analysis looking at the possible risks, cautioning that scenarios such as the attack by the US and Israel on Iran, as well as recent geopolitical and supply chain disruptions, warrant the country to have a strong grasp on such matters as energy security.  

“Such an analysis cannot be done by transaction advisors who are driven by the bonus pegged on successful share sale but by independent security analysts,” said Gichinga.

“We are entering into a period of huge geopolitical risks. National security is extremely critical in such aspects, and we have to separate this from transaction advisors. It should be given to the national security council, which can look into and see whether there are any security angles, before it can then go to the transaction advisors.”

Uganda accounts for 35 per cent of KPC’s revenue, but despite being the single largest customer, Uganda and Kenya have in the past had strained relations. In 2023, for instance, Ugandan President Yoweri Museveni accused Kenyan middlemen of being responsible for high pump prices in Uganda and went ahead to give Uganda National Oil Corporation (Unoc) the role of sole fuel importer for the country, in what would see it cut out Kenyan oil marketers. It signed a deal with Vitol Bahrain, which would supply Unoc with petroleum products.

Unoc would, however, be denied a licence to import fuel through Kenya by the Energy and Petroleum Regulatory Authority (Epra) as it failed to meet requirements such as having petrol stations in Kenya. Uganda threatened to exclusively use Tanzania as an import route and filed a suit at the East African Court of Justice, but the row was eventually resolved and Unoc given the import licence. 

In 2024, Uganda again protested Kenya’s signing a Government-to-Government agreement with three Gulf oil firms for the import of petroleum products without consulting it. Despite the acrimony, Kenya and Uganda have also cooperated, and KPC and Unoc have been in talks to extend the pipeline from Eldoret to Malaba and on to Kampala.

Martin Chomba, chair of Petroleum Outlets Association of Kenya, termed the conditions that the government agreed to as deeply unsettling.  

“If this were being done by a private company in Uganda, there would be no problem. But now this is the government of Uganda that is buying through their national oil company. When they demand two seats at the board, essentially, it is the government of Uganda that will be sitting at that board. KPC is a national strategic installation for Kenya since energy is a national security matter,” he said, adding that ceding so much ground would mean that Kenya no longer has the right to make decisions that address petroleum industry-related challenges that are unique to Kenya  

“KPC will no longer be a Kenyan company but a Kenya-Uganda company, and the two countries have to agree on making decisions,” he adds.

“In international relations, states are rational beings, and each operates towards what is good for them. Not what is good for the neighbour, and when Uganda decides what is good for them, Kenya might have to agree otherwise. Kenya does not have the liberty to make decisions. We have built KPC for such a long time only to come and sell the rights on tariff setting and hiring of leadership, which are the most essential for the company.”

Kiharu MP Ndindi Nyoro, who termed the IPO a flop, pointed to hostilities between the two countries having been much alive during negotiations for what stake Uganda would take, and Uganda, sensing Kenya’s fear of a failed IPO, outfoxed its neighbour.

“KPC IPO was a flop,” he said, adding that by February 19, when the IPO was initially set to close before the offer was extended to February 24, it had gotten a dismal subscription. It was against this that the government moved to make huge concessions to Uganda and bring the country on board.

“In those few days (extended offer period), Kenya begged Museveni to put in money. That was not market-driven. But Museveni, because he is experienced and is looking at the welfare of Ugandans better than our leaders are at looking after the welfare of Kenyans, he gave two solid conditions – that Uganda be given two board members and veto powers on the appointment of the CEO of KPC.”

“And Kenya granted Museveni and Uganda that request. Ugandans did not buy KPC shares; they bought control of the Kenya pipeline.”

Following the deal, Uganda’s Minister for Energy Ruth Nankabirwa said at a press conference that the country had also secured “veto power on any changes in the pipeline tariff”. She added that the country will no longer be at the mercy of Kenya when it comes to fuel security supply.

“You do not sit in Nairobi and say ‘we need money to do (this or that project...let us increase the cost of transporting this fuel’... we (Uganda) must have a say so that our people back home are comfortable and do not wake up and prices of fuel are high because the tariff has an impact on the end user price,” she said, adding that a large proportion of products that pass through the KPC infrastructure end up in Uganda, making it a key stakeholder.

President William Ruto, speaking yesterday during the bell ringing for the listing of the KPC shares at the Nairobi bourse, said the presence of Kenya’s neighbours at the pipeline company made it a strategic regional company. 

“Equally significant is the participation of the Governments of Uganda and Rwanda, investments that strengthen Kenya Pipeline Company as a strategic regional enterprise and reflect the deepening economic integration within the East African Community,” said Ruto.

The words were echoed by KPC board chair Faith Boinett.

“To our brothers and sisters across East Africa who took up a stake in KPC, welcome home. The pipeline that serves your economies is now partly yours. This is a regional integration in its most tangible form,” she said.