By Rédaction Africa Links 24 with BRIAN ORUTA
Published on 2024-01-19 10:31:10
When President William Ruto assumed office in September 2022, his administration embarked on negotiating a Government-to-Government (G-to-G) oil plan with Gulf countries. This procurement method involved entering into a bilateral agreement with oil-producing nations in the Gulf to supply oil on credit, with the aim of stabilizing fuel prices in Kenya.
The arrangement allowed Kenya to purchase fuel using the local currency, thereby eliminating the need to source for dollars. Under this deal, the country, through appointed local oil marketers, received fuel on credit terms for up to six months from Emirates National Oil, Abu Dhabi National Oil, and Saudi Aramco. Once the fuel was received by the appointed oil marketer, it was sold to peers in shillings before being supplied to retailers. The shillings paid by local oil marketers were kept in escrow accounts managed by three local banks, with Kenya Commercial Bank leading the process. It took 180 days to collect enough dollars to pay suppliers in the Gulf.
Although the arrangement was expected to stabilize fuel prices and the economy, it did not yield the anticipated results. The National Treasury has announced that the temporary oil import arrangement will be allowed to lapse due to the high risk facing private sector financiers of the facilities.
According to an IMF report, the exchange rate used for purchasing foreign exchange (FX) under the scheme and the rate at which the government will provide access to US dollars will not deviate from the prevailing market rate by more than 2 percent. Additionally, regulations on the fuel pricing formula will be amended to specify pass-through of the exchange rate risk component and any other risks that may materialize.
Following this announcement, there have been varied reactions among Kenyans. The decision to allow the temporary oil import arrangement to lapse has sparked discussions about the implications for the energy market and the economy as a whole. Some are concerned about the potential impact on fuel prices and the stability of the market, while others are hopeful that alternative solutions will be found to address these challenges.
Read the original article on The Star
