Local oil companies will pay for oil imported on credit through a government-to-government deal in Kenya shillings to ease pressure on the local currency that continues to hit new record lows every week.
Energy and Petroleum Cabinet Secretary Davies Chirchir said on Monday that the government signed a deal last week with Saudi Aramco to supply Kenya with diesel and super for the next six months, while Abu Dhabi National Oil Company (Adnoc) will deliver three cargoes of super petrol every month.
Saudi Aramco is the world’s biggest oil producer and it recently bought US motor oil and lubricants group Valvoline, giving it a local presence locally in Kenya. The third player selected by the government to participate in the fuel import deal that technically shelves the current open tender system hailed for bringing transparency in the oil business in Kenya is the Emirates National Oil Company Group (Enoc).
“The product will now be paid for in Kenyan shillings and this will ensure the dollar is available for other sectors of the economy,” Mr Chirchir said adding that the importation through government to government shall be centrally coordinated by his ministry.
He says the government invited offers from government-owned entities in the Middle East for the supply of fuel for 270 days. “The proposed transaction is expected to alleviate the demand for dollars driven by petroleum imports by extending the time required to source for the dollars from the current five days to 180 days,” he said.
How the deal will work
Mr Chirchir revealed that Adnoc, Aramco and Enoc will supply oil to nominated local suppliers in Kenya who will be the only ones required to pay in dollars after the six-month window. The nominated suppliers will then sell the fuel to the rest of the local players in Kenyan shillings, meaning that they will not need dollars to secure their orders anymore.
The government will then shoulder the currency risk through a Letter of Support to back the nominated oil marketers that will be dealing with the Middle East oil suppliers. This comes at a time when delays in actualising the deal has raised fears of stockouts of super, diesel and jet fuel, causing the government to clear import top-ups.
Principal Secretary for Petroleum Mohamed Liban says in a letter to oil marketers that Kenya needs an extra 85,000 metric tonnes of diesel, 60,000 metric tonnes of super and 40,000 metric tonnes of jet fuel this month. The request for extra imports comes amid a government-to-government deal with United Arabs Emirates where Kenya is hoping to import fuel on a credit of 180 days to ease pressure on the forex.
Petroleum imports account for nearly a third of Kenya’s imports bill every month. The government targets to start the imports on April 1, but the proposal is already facing headwinds after oil marketers went to court in a bid to block it, raising fears that the deal might be delayed.
“Epra has recommended top up of cargoes for March 2023 to bridge the shortfall during the transition period from the (Open Tender System) OTS system to Government-to-Government arrangement for purposes of ensuring the security of supply,” Mr Liban says in the letter dated March 10.
“This is therefore to approve top-up on all upcoming cargoes by importers as per Epra’s recommendation in order to ensure that we have adequate molecules to cushion the country against a stock out.”
The directive comes after the Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo wrote to his parent ministry last week, seeking clearance to issue the top-ups for the March Open Tender System. Officials from the Ministry of Energy and Epra are racing against time to firm up the deal with the UAE.
Under the deal, Kenya targets to import between 3,870,000 to 4,230,000 metric tonnes of diesel and between 3,060,000 to 3,420,000 metric tonnes of supe for nine months to the end of this year.
The country will also import 810,000 to 900,000 metric tonnes of jet fuel in the nine months in the deal that has since seen oil marketers petition the High Court to block it. The dealers last week petitioned the court to block the deal saying that the plan by the government to pick a local oil marketer will be a breach of the Open Tender System where marketers competitively bid for the tender.
The shilling on Monday hit a new all-time low at 129.80 units against the dollar, setting up consumers to costlier imports.