Uganda faces higher fuel prices as Kenya imposes $40m tax on oil imports

Ugandan consumers may not see a reduction in fuel prices anytime soon, as Kenya has imposed a substantial tax on fuel imports destined for Uganda. The move is expected to increase the cost of fuel in Uganda, despite efforts by the Ugandan government to reduce prices through a new fuel importation plan.

The Kenyan government has introduced a $40 million bond fee on fuel imports passing through the port of Mombasa, which is a crucial transit point for Uganda’s fuel supplies. This fee will be passed on to Ugandan consumers, negating any potential price reductions.

Uganda’s Energy Minister, Ruth Nankabirwa, expressed disappointment at the move, stating that it “will push UNOC (Uganda National Oil Company) to increase prices, and therefore, Ugandans are likely not to see a reduced pump price.” She added that the tax was “a deterrent” and “not in the spirit of the East African Community.”

Private oil importers in Uganda also expressed concern, noting that the tax will force UNOC to increase prices to maintain profitability. “The tax will force UNOC to automatically increase the pricing in order to make profits. The money we have been losing to middlemen, which the government is trying to save, will now go to the Kenyan government,” said Anthony Ogalo, Chairman of the Sustainable Energies and Petroleum Association (SEPA).

The Ugandan government had hoped to reduce fuel prices by importing fuel directly from the Middle East, bypassing Kenyan middlemen. However, Kenya’s imposition of the bond fee undermines this effort. The plan, which was supposed to start in January, was delayed due to Kenyan authorities taking a long time to grant necessary approvals.

Uganda’s fuel consumption reached 2.5 billion liters in 2023, with 90% of it imported through Mombasa port. The country is now exploring alternative routes, such as the southern corridor, to reduce its reliance on Kenya for fuel imports.

Captain Mike Mukula, Chairman of Mahathi Infra Uganda Limited, suggested that the government should consider securing a pipeline in the southern corridor to solve the crisis once and for all.

The development highlights the challenges faced by landlocked countries like Uganda in securing affordable fuel supplies. The situation also underscores the need for regional cooperation and harmonization of policies to benefit the citizens of East African countries.