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Gulf oil giants cut prices by up to 14pc in extended Kenya import deal
Kenya has agreed to extend the deal with the three Gulf firms until December 2027 for diesel, while the jet fuel and petrol deals will lapse in February and March the following year respectively.
Three State-owned Gulf firms have agreed to lower petroleum prices by up to 14 percent per tonne in an extended fuel supply deal with Kenya, signalling a relief for consumers at the pump.
In the new government-to-government (G-to-G) deal, Kenya will now buy a tonne of diesel from Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company at $78 (Sh10,080.72), a drop of 11.3 percent from the current $88 (Sh11,373), while that of petrol will go for $84 (Sh10,856) from $90 (Sh11,631). A tonne of jet fuel will cost $75 (Sh9,693) from $111.75 (Sh14,442).
“The IOCs (international oil companies) agreed to GoK’s (Government of Kenya) request for review of the freight and premium (F&P) considering the long-term relationship. This would help Kenya become more competitive and hence the preferred route of importation for the region,” read documents seen by the Business Daily.
“The suppliers provided the proposed revised F&P which is lower by $10 (Sh1,292.41) per tonne, $14.75 (Sh1,906.31) per tonne, and $6 (Sh775.44) per tonne of diesel, jet A-1 and super petrol,” the document added.
The price cuts are expected to help lower pump prices and extend a trend that consumers enjoyed for most of last year.
A litre of diesel currently retails at Sh167.06, while petrol sells for Sh176.58 in Nairobi, compared to Sh190.38 and Sh199.15 respectively in March last year.
Kenya has agreed to extend the deal with the three Gulf firms until December 2027 for diesel, while the jet fuel and petrol deals will lapse in February and March the following year respectively.
Reducing the prices (premiums) is critical to lowering pump prices. This is because premiums and the exchange rate are the two biggest components that the energy regulator uses to set prices on the 14th day of every month.
A stronger shilling (exchanging at 129.24 units to the dollar) and the new premiums will set the stage for fuel price cuts in the coming months.
Kenya, while reviewing the proposal to extend the fuel import deal, requested the three Gulf firms to reduce the premiums and freight of the fuel in order to accord Kenyans cheaper fuel.
Global crude oil prices have been falling since last year, prompting Kenya to push for lower premiums to ensure that consumers do not miss out on the price relief.
Kenya entered into the deal with the three companies in March 2023, switching from an open tender system in which local companies bid to import oil every month.
The deal was adopted as a remedy to the difficulties oil marketers face in obtaining dollars from the domestic market, amid shortages caused by hard currency hoarding and foreign outflows in the wake of sovereign default fears.
Under the deal, three oil firms nominated by the Gulf companies import fuel on a credit period of 180 days. The three Kenyan firms are Galana, Gulf and Asharami & One Petroleum, which then sell fuel in shillings to the rest of the local players.
The deal was instrumental in lifting the shilling to its current exchange rate of 129.24 units to the dollar, from a record low of 160 units witnessed in late 2023.
Under the deal, Kenya committed to import 8.56 million tonnes of diesel, 7.01 million tonnes of petrol and 2.9 million tonnes of jet fuel.
However, as of March 16, Kenya had only lifted 6.23 million tonnes of diesel, 4.56 million tonnes of petrol and 1.98 million tonnes of jet fuel. The Energy ministry reckons that the remaining volumes would be lifted within the extended period.
The extension is expected to be formally signed in the coming days, with the ministry adding that it is ‘working closely’ with the Gulf oil firms on supplying the regional market.
The deal with the Gulf oil firms had earlier been thrown into doubt over whether Kenya would fully honour its end of the bargain following Uganda’s withdrawal.
Uganda exited on grounds that the Kenyan deal led to expensive fuel in Kampala. But Uganda’s deal has instead led to higher pump prices in the country, making it home to the most expensive fuel in the East African region.
