Just as the New Year celebrations are winding down, it has emerged that the government of Uganda, through its Attorney General has filed a petition with the East African Court of Justice against Kenya over the continuing feud over oil importation between the two countries. In the petition, which was filed on December 28, 2023, Uganda accuses the Kenyan government of foul play in denying it access to import oil through the country. Is this move, the latest in a tussle of will and wits between the two countries, a manifestation of deteriorating relations between the two countries and a shift in regional dynamics?
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An Oily Beef
Uganda’s move to sue Kenya at the regional court is centered upon the oil importation deal between the two countries. Because Uganda is a landlocked country, it is heavily dependent upon Kenya for the importation of its oil through the port of Mombasa. Kenya handles about 90% of Uganda’s oil which is valued at about US$2.5 Billion (Kshs 393.37 Billion) which it imports on behalf of and sells to Uganda. However, a recent policy change in the Ugandan government sought to hand the country the right to have an independent oil importer. Why so, one might ask?
Kenya’s oil market was initially operated under the Open Tender System where the Kenyan government would open the bidding process for the importation of oil to the various Oil Marketing Companies (OMCs). Whichever company won the bid was required to import on behalf of and sell to the rest of the OMCs. Consequently, this open market system created a competitive environment that helped to stabilize oil prices. More importantly, the transaction for the importation and the sale of oil was done in US Dollars with respect to the buying and selling system of the International Oil Market.
However, the Kenyan government reverted to a more mercantilist oil importation policy in early 2023. In the newly implemented Government-to-Government Agreements, Kenya entered into a consensus with foreign oil-exporting governments to buy oil on six-month-long ‘grace periods of delayed payments’ through its OMCs and to sell it to the local market as well as to regional buyers such as Uganda. This move is meant to keep US dollars in Kenyan reserves for as long as possible.
Kenya cited a shortage of US dollars in its reserves as well as instability in the oil market as some of its primary reasons for implementing this policy. These transactions would be carried out in Kenya shillings to ease the burden on Kenya’s dollar reserves. Nonetheless, Kenya would thus inherit ‘high-interest, long-term payments’ to the governments that it purchased the oil from.
Many have since called out the absurdity of this move, claiming that it does more harm than good in the long term for Kenya’s economy. Kenya’s opposition leader, Raila Odinga, termed the policy as being ‘fraudulent’ and called for investigations to be launched surrounding the terms of these oil deals. The policy deregulates Kenyan OMCs, and many of these companies have taken advantage of selling oil at hiked prices, particularly to regional importers such as Uganda. Uganda’s President, Yoweri Museveni, claimed that the situation was proving to be untenable as Ugandans were being ‘cheated’ as the price of oil being sold to them was being hiked by up to 58%.
Therefore, Uganda chose to revert its policy and set up itself to import oil independently to avoid buying from Kenya’s OMCs. Uganda’s government thus mandated the Uganda National Oil Company (UNOC) to be the country’s sole oil importer, through the Ministry of Energy and Mineral Development. A willing international oil vendor in Vitol Bahrain was found and a five-year importing agreement was signed.
However, Uganda still has to find a way to transport its oil through Kenya once it gets to the Mombasa port, hence an agreement with Kenya was necessary. UNOC thus launched the approval process for the same through Kenya’s Ministry of Energy in April 2023 and was required to file for an operations license through the Energy and Petroleum Regulatory Authority (EPRA).
Kenya, despite a pledge to honor Uganda’s policy change on oil importation, has been slow to adhere to Uganda’s requests and has dragged out the license acquisition process for UNOC. Firstly, EPRA put out ‘irrational and impractical’ requirements for UNOC to register as a licensed OMC in Kenya. Upon a request for exemptions (seeing as UNOC was only willing to utilize the transport and service industry and not register as a business), a communique from Kenya’s Ministry of Energy gave a promise to reconsider the request at the Cabinet level.
Nevertheless, a conservatory order from the Machakos High Court on 7th November 2023 restrained EPRA from granting the OMC license to UNOC following a petition filed at the court. The order has since been extended to January 22, 2024.
It is under these circumstances that the Ugandan government has moved to sue Kenya over its vexatious efforts to frustrate it over the independent importation of oil. Kenya is bound by the United Nations Convention on the Law of the Sea (UNCLOS) as well as the Treaty for the Establishment of the East African Community to provide access to and from the sea and freedom of transit through the territory of Kenya by all means of transport, given Uganda’s landlocked nature.
Uganda is looking to call out the Kenyan government’s blatant efforts to delude and mask its true intention over an apparent show of smoke and mirrors. The actions taken by Kenya, while being inexcusable, were perhaps foreseeable given that Ugandan oil is an important revenue stream for the Kenyan government. Oil imports to Uganda account for about 23% of total oil transit flows through Kenya. Kenya could lose up to $160 million annually in revenue by not directly handling Ugandan oil.
The Regional Stand-Off
Kenya vs Everyone
Kenya’s newfound hostility with her neighbors is not only limited to Uganda but also to other countries in the region. Countries such as Burundi, DRC, and Rwanda have also been unhappy with Kenya’s disingenuous policy, particularly in the import-export sector. These countries are dissatisfied with Kenya’s heavy-handedness and abuse of its position of privilege to impose impractical policy restrictions on them.
Kenya is taking advantage of its better-developed infrastructure to coerce her regional neighbors to conduct business through it, even with unfavorable terms involved. Kenya might get away with this in the short term but when driven to the wall, the region might seek better trading options, hence affecting Kenya’s regional position in the long term.
Colonial and Post-Colonial Roots
The East African region shares a shared and intertwined history that stems from the colonial times, given their shared colonial overlord in Britain. Consequently, the region shared a common infrastructural development plan during colonialism. By their time of independence, however, each country became preoccupied with a focus on national development which drove each country towards its unique path.
Concerted efforts towards regional integration resulted in the establishment of the East African Community in 1967, an arrangement that saw the countries ( i.e. Kenya, Uganda, and Tanzania) agree to set up regional self-contained services to be shared between them. Some of these services included the East African Railway Corporation (EARC), East African Harbors Corporation (EAHC), East African Ports and Telecommunications Corporation (EAPTC), and the East African Airways Corporation (EAAC).
The Community collapsed in 1977 largely due to personal differences between the three countries’ leaders, particularly between Julius Nyerere of Tanzania and Idi Amin of Uganda. Nonetheless, another major contributing factor was the unequal economic growth within the regional organization. Kenya’s economic growth measured at a real GDP growth of about 7.5% compared to Tanzania’s 6.3% and Uganda’s 2.0% (1967-1977 average) was not equivocally reflected in the redistribution of economic benefits from the community.
The disparity in economic size with Kenya meant that importing from it became expensive for her regional counterparts causing them to seek other alternatives for trade transactions. That said, Kenya’s burgeoning economy and its position as a regional hub has put most of her regional counterparts at her behest, for now at least.
Regional Politics and the Dynamics of EAC
Uganda, like many of her neighbors, is looking to break free from its ‘overreliance on Kenya’, especially on a commodity as precious as oil. Kenya’s influence over the region is far-reaching, given that any form of domestic destabilization in the country is felt over the region. In 2008, for example, Uganda was almost cut off from its oil supplies due to the post-election violence in Kenya.
Many economies in the region have also been growing tremendously and Kenya’s regional economic influence is not as strong as it once was. In other words, there are more trading routes and options that do not involve dealing with Kenya which can be exploited should Kenya continue proving to be an obstinate partner.
The chief regional rivalry, especially in EAC, is perhaps one between Kenya and Tanzania. Tanzania’s economy is second in size only to Kenya’s and it has been growing at a tremendous rate. It is expected to surpass Kenya’s economy in 10 years. Tanzania has been the biggest beneficiary of Kenya’s economic drawback in recent days, seemingly picking up the pieces falling off from Kenya’s economic arrangement.
Despite her recent positive economic stature, Tanzania has endured a period of isolationism stretching to Jakaya Kikwete’s tenure characterized by disagreements and disintegration with most of her neighbors. Therefore, this gave Kenya an upper hand to foster closer regional relations with her neighbors.
By the turn of the 2010s, Kenya had a strong economic and defense agreement with Uganda and Rwanda, commonly referred to as the ‘Coalition of the Willing’. However, an emergence from isolationism by Tanzania during Magufuli’s presidency coupled with Kenya’s continued obstinance with her regional counterparts spelled the beginning of the end for Kenya’s regional dominance.
Kenya and Uganda had an agreement in place to build a shared pipeline to facilitate the shared export of the newly discovered oil from both countries. The Uganda-Kenya Crude Oil Pipeline (UKCOP) was projected to traverse from Uganda’s reserves to the west of the country, through Kenya’s northern corridor, and on to the Lamu port. The pipeline was a huge win for Kenya as it would open up the country’s northern frontier and necessitate Kenya’s own LAPSSET project.
However, Magufuli managed to play to Museveni’s insecurities concerning the project and he managed to woo him into acquiescing to routing Uganda’s oil through the East African Crude Oil Pipeline (EACOP) which, surprise surprise, passes through Tanzania and to the Daresalaam port.
To add insult to injury, Somalia also took Kenya to court on the shared maritime border between the two, seeking to stake a sizeable claim to it. Somalia had lodged a case against Kenya at the International Court of Justice in 2014, after what it claimed to be a breakdown in negotiations concerning the issue which had been initiated in 2009. Kenya pulled out as many diversionary tactics on the case, delaying its hearing for as long as possible up until 2021.
Upon the determination of the case, Kenya was already up in arms pledging not to recognize the ruling of the court, perhaps realizing that the proposition by the courts meant reduced access to the sea and the potential oil reserves that are abundant in the area of contention. Nonetheless, the encounter with Somalia left Kenya shaken and perhaps, contributed to tainting its image as an unfaltering regional kingpin.
Kenya’s bubble of overconfidence has seemingly been burst. The recent encounters with Uganda concerning UKCOP vs EACOP as well as the maritime dispute with Somalia have been a spat in Kenya’s face. The writing is seemingly on the wall and everyone else has seemingly read it loud and clear. How much longer does Kenya have left to retain its position as the regional powerhouse it currently is? Not long. The clouds are gathering. The vultures are circling.
Read More: The Hike in Fuel Prices in Kenya.
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