The government has extended the fuel import deal with three Gulf oil majors as the country races to meet the volumes of fuel that it negotiated to buy under the deal.
The Cabinet on Tuesday approved the extension but the timelines remain undisclosed, adding that the deal was critical in shielding the shilling from weakening further besides ensuring that Kenya is not plunged into supply disruptions like other countries.
The deal was initially set to lapse at the end of this year, but a change in contract terms following the exit of Uganda raised speculation that the agreement would extend past this year.
Kenya signed the deal with Saudi Aramco, Abu Dhabi National Oil Corporation (Adnoc) and Emirates National Oil Company (Enoc) in April last year, allowing for importation of fuel on a 180-day credit period.
“The Cabinet has approved the extension of the Government-to-Government (G-to-G) arrangement for the import of refined petroleum products,” read a dispatch from the Cabinet.
The deal was meant to arrest the free-falling shilling by ending the monthly demand of over $500 million that oil dealers needed to pay for fuel on the spot markets.
It (the deal) has partly helped prop up the shilling to a high of 129.27 units to the dollar on Monday from a low of 160 units at the start of this year.
Kenya had been importing fuel through the Open Tender System (OTS) before the deal with the three Gulf oil majors was introduced.
Kenya renegotiated the deal last year, changing it from a fixed period to defined volumes of fuel, following the exit of Uganda.
Gulf Energy, Galana Energies and Asharami & One Petroleum are the local firms importing fuel and paying in dollars. The rest of the Kenyan oil marketers pay for their cargoes in Kenyan shillings.
The model is being replicated by other countries such as Malawi and Zambia in a bid to ease supply disruptions caused by lack of enough dollars to pay for fuel imports.
Besides these countries, Burundi is also grappling with fuel shortage attributed to lack of enough dollars to pay for imports, highlighting that countries are keen to replicate Kenya’s model.
Kenya had included Uganda as part of the market while negotiating the deal with the Gulf oil majors in late 2022.
But Uganda pulled out a year after Kenya started the imports, prompting the country to seek a review of the contract terms to avoid penalties from the Gulf oil majors.
Uganda began a government-backed deal with Vitol Bahrain mid this year, as the neighbouring country sought to secure cheaper fuel for Kampala.
But while Kenya’s deal with the Gulf oil majors has helped to steady the shilling against major global currencies, concerns are rife that consumers are missing out on the relief anticipated from falling crude prices in the global market.
The three Kenyan oil firms are buying the fuel at fixed premiums of $90 and $88 per barrel of petrol and diesel respectively.
Global prices, on the other hand, have dipped from $91 (Sh14,451.71) per barrel in December last year to $73.41 (Sh9,534.49) last month.
A litre of petrol fell by Sh4.76 to Sh176.29 in Nairobi on Saturday, while that of diesel dropped by Sh3 to Sh165.06.The prices will remain in place for a month until January 14 next year. However, the government has been subsidising diesel, helping to avert an increase in its price.
