Cabinet has extended the Government-to-Government (G-to-G) oil import deal with three Gulf oil companies that helped ease pressures on the exchange rate.
- The deal was inked in March 2023 with Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil company as a temporary measure to help ease FX pressures.
- In a bid to stabilize gas prices, the Cabinet approved the importation of Liquefied Petroleum Gas (LPG), Heavy Fuel Oil, and bitumen through a centrally coordinated bulk procurement system.
- During the meeting on Tuesday, the cabinet noted that the deal helped strengthen the shilling and reduce fuel prices, subsequently withholding the timelines for the renewed arrangement.
“This arrangement has eased the monthly demand for US dollars for petroleum imports, stabilising the shilling-dollar exchange rate at KSh129 from a high of KSh 166 and reducing pump prices from KSh 217 per litre of petrol to KSh 177,” the Cabinet said in a statement.
The agreement with the Gulf companies includes 180-day credit terms, enabling the country to accumulate dollars gradually for purchases, removing the need for importers to spend millions of dollars every month.
“The arrangement secures the supply of refined petroleum by allowing payments in Kenya shillings, previously estimated at $500 million a month,” it added.
The G2G deal momentarily replaced the open tendering system last year, the latter system being blamed for aggravating forex pressure.
“Since the start of the G2G arrangement, none of 136 oil marketing companies have gone to the market to source for US dollars which have served to remove market speculation thereby further stemming the depreciation of the Kenyan shilling,” Former CS Njuguna said at the start of 2024.
In January, the government announced plans to exit the oil import agreement, admitting it did not work as they had intended.
The government disclosed that it faced challenges including a decline in consumption of fuel in both the domestic and re-export markets in the region, complicating the deal’s smooth sail, prompting an extension of the programme to December 2024.
In July, Uganda ceased buying fuel from private oil marketers in Kenya and began importing fuel directly after an agreement to allow Uganda’s state oil firm Uganda National Oil Company (UNOC) to receive a license to import petroleum products via Mombasa.
