In a bid to ease pressure on the shilling currently depreciating in value against the dollar, the government has adopted a government-to-government deal on oil importation.

In a statement, Cabinet Secretary for Energy and Petroleum Davis Chirchir said the government went into an agreement with different governments leading to the signing of a deal with Saudi’s Aramco to supply Kenya with two diesel cargos every month for the next six months.

­The Government-to-Government agreement replaces the current Open Tender System (OTS) process reported to incur a monthly cost of approximately 500 million dollars.

How did the Open Tender System work?

Kenya imports refined petroleum products through the OTS and runs through monthly tenders that entail sourcing of petroleum predominantly from the spot market whereby petroleum is sourced from the open market without any prior contracts.

Kenya is set to import petroleum products from the first week of April 2023. Abu Dhabi National Oil Company (ADNOC) Global Training Limited will supply 170,000 to 200,000 metric tonnes(MT) of automotive Gasoil/Diesel and 80,000 metric tonnes(MT) of Jet A-1/Dual Purpose Kerosene.

Aramco Trading Fujairah FZE (Saudi Arabia) will supply 160,000 to 180,000 metric tonnes(MT) of Automotive Gasoil/Diesel while Emirates National Oil Company Limited (Singapore) Ltd will supply 250,000 to 350,000 metric tonnes(MT) of premium motor spirit/super petrol.

In his submission, Mr. Chirchir stated that the agreement is contained within the Petroleum (Importation) Regulations, 2023 (Legal Notice No. 3 of 2023).

Further, he expounded on the agreement saying that it is designed to alleviate the increasing demand for the dollar driven by petroleum imports by extending the time required to source for dollar liquidity from the current five days to 180 days.

“­The Foreign Exchange reserves are under pressure since the dollar requirements by Oil Marketing Companies (OMCs) account for 30% of Kenya’s total dollar requirements. ­ The agreement will increase the country’s forex reserves, which will help decrease currency speculation, whilst revamping the country’s dormant interbank market.”  Mr. Chirchir said.

Further, the CS said that the Kenyan interbank market would benefit from this deal because the issuance of Letter of credit will be syndicated through the Trade Development Bank (TDB), confirmation through local and multinational Commercial Banks and refinancing through Suppliers’ Banks.

“This basically will relieve the pressure on the dollar to ensure that these dollars are available for the rest of the industry in manufacturing, food security, and other sectors,” he explained.

Mr. Chirchir noted that the importation arrangements will be centrally coordinated by his ministry.

“The proposed transaction is expected to alleviate the demand for the dollar-driven petroleum imports by extending the time required to source for USD liquidity from the current five days to one hundred and eighty days,” he said.

“This is expected to increase the country’s forex reserves which will help decrease currency speculation, whilst revamping the country’s dormant interbank market. What we are doing as a country is to try and manage the interbank spread and with the challenge of the tightening of the monetary policy, we should be able to bring this under control,”