Unmasking Museveni's double speak on Kenya G-to-G fuel deal

After last week’s scathing attack on Kenya's Government-to-Government (G-to-G) fuel import deal, during which he likened the government to middlemen, Ugandan President Yoweri Museveni retracted his remarks on Sunday.

He instead thanked President William Ruto for his help in getting the middlemen to stop their exploitative behaviour, while accusing “some Kenya media people” of adding pilipili (red pepper) to his remarks, which he claimed were taken out of context.

While he had dismissed the Kenyan fuel deal as "Government-to-Middlemen" at a function last Thursday, Museveni on Sunday sought to set the record straight, saying President William Ruto had "helped Uganda secure low-cost products".

“I want to thank President Ruto because he prevailed over some actors in Kenya who were trying to resist. That is how we got our new arrangement, and the Kenya Government allows us to pump our products through the Kenya oil pipeline, in which the Kenya government allowed us to have shares of 20.15 per cent,” he said in a social media post on Sunday.

“We are very happy with the government of President Ruto on this matter.”

However, while President Museveni retracted his sharp criticism of Kenya’s petroleum sector, the core issues that sparked the dispute remain and continue to drive a wedge between Kenya and its largest trading partner.

These realities include supply chain dependencies, shifting trade dynamics and significant price disparities between the two nations, which have pushed Uganda to look for alternatives.

Why Uganda bypassed Kenyan oil marketing companies

In November 2023, Uganda began sourcing products directly from Vitol Bahrain EC, bypassing Kenyan oil marketers who had previously imported fuel into Uganda and distributed it to the country’s local marketers, a move Museveni termed “buying products through middlemen in Kenya by tendering to those middlemen”.

The country restructured its petroleum importation processes, giving the Uganda National Oil Company (Unoc) immense powers in the procurement, importation and distribution of fuel in Uganda.

Unoc was named the exclusive importer of fuel to Uganda, distributing to other oil marketers. It also signed a deal with Vitol Bahrain EC as the sole supplier of petroleum products to Unoc. Uganda has, however, not made disclosures on the impact that Vitol’s financing of products has on the price of fuel.

This happened a few months after Kenya started importing petroleum products through G-to-G in April 2023, when Museveni, in a statement, said Uganda’s fuel bill was inflated by as much as 59 per cent due to the reliance on “Kenyan middlemen” and directed a relook into the sector.

The middlemen?

Uganda has historically relied on Kenyan oil marketing companies (OMCs) to import fuel through the Mombasa Port and to transport it via the Kenya Pipeline Company’s (KPC) pipeline network to Uganda. These are likely the middlemen Museveni has been referring to, whom he noted have been unchecked and have inflated fuel prices by 59 per cent.

Kenya’s Energy Ministry defended the companies, noting that the International Oil Companies that signed the G-to-G fuel supply deal with Kenya handpicked the OMCs that were to handle logistical issues in Kenya.

Despite Museveni arguing that Uganda has broken away from exploitation by Kenyan OMCs, it remains heavily dependent on Kenya’s infrastructure. Unoc’s fuel still arrives at the Mombasa Port and uses KPC’s infrastructure to move it to Uganda. It made major gains in its control of the KPC infrastructure after acquiring a shareholding of more than 20 per cent in KPC following the Initial Public Offering completed in March this year.

Higher premiums that have led to higher pump prices

In his statement, Museveni noted that the premiums – which are charges added to the cost of petroleum to cover suppliers’ costs, freight and insurance – that Uganda had been paying before it started sourcing products from Vitol were significantly high.

It would pay $118 (Sh15,281) per metric tonne of diesel, but this has since come down to $83 (Sh10,748.50). The premium for super petrol was initially $97.5 (Sh12,626.25), but this has since dropped to $61.5 (Sh7,964.25) per tonne, while that of kerosene has dropped from $114.25 (Sh14,795.38) to $79.25 (Sh10,262.88) per tonne.

A statement by Kenya's Energy and Petroleum Ministry confirmed the old premiums that had been negotiated under the G-to-G framework but said that these have since been renegotiated and have come down over time.

The new rates that Kenya has been paying are, however, still higher than what Uganda pays.

Energy CS Opiyo Wandayi, in the statement, said premiums had come down, from an initial $97 (Sh12,561.50) per metric tonne of super petrol to the current $84 (Sh10,878) per tonne. The premiums for diesel, he said, have reduced $78 (Sh10,101) per metric tonne from $118 (Sh15,281) and that of jet fuel dropped to $97 (Sh12,561.50) from $114 (Sh14,763) per tonne when the deal was initially signed.

“These premiums have remained fixed even during the height of the Middle East crisis when the spot market offers went up to as high as $400 (Sh51,800) per metric tonne,” he said.

Due to higher premiums and a higher tax regime, Kenyans pay the highest pump prices in the region at Sh214.25 per litre of petrol compared to Sh179 in Uganda and Sh205 in Tanzania.