Kenya’s energy sector faces a pivotal juncture as the government deliberates on the fate of its government-to-government (G-to-G) fuel import deal with Gulf nations. This Wednesday, a decision is expected to be unveiled that could reshape the country’s approach to energy procurement. Initiated earlier this year, the deal aimed to mitigate dollar pressure and provide a cost-effective solution for fuel imports. However, concerns have arisen regarding its efficacy and impact.

Fuel costs have surged, placing a burden on Kenyan consumers who now pay Sh 194.68, Sh 179.67, and Sh 169.48 for Super petrol, diesel, and kerosene respectively. The Ministry of Energy has been under scrutiny since July when fuel imports experienced delays, pushing them into the August cycle. This delay, combined with rising prices, has led to potential increases of up to 17 percent in fuel costs for citizens.

Central to this discussion is Energy and Petroleum Cabinet Secretary Davis Chirchir, who emphasizes that the Government-to-Government deal has played a role in slowing the depreciation of the Kenyan shilling against the dollar. Despite challenges, Chirchir asserts that the agreement has contributed to some degree of currency stabilization. The shilling, once valued at Sh128 against the dollar, has seen a gradual decline, currently standing at Sh 145.2.

The G-to-G arrangement marked a significant departure from the prior model, which allowed all retailers to participate. The winner would supply the oil industry for two months and settle payments in hard currency within five days of delivery. However, as the shilling’s value remains in flux, questions have emerged about the sustainability of this agreement.

Chirchir’s words shed light on the deliberations: “Between today and Wednesday, we are going to discuss whether to continue with the G-to-G agreement or revert to the spot market.” The focal point of these discussions is engaging with various Oil Marketing Companies.

Addressing the broader perspective, Chirchir adds, “While we’ve made strides in curbing shilling depreciation, we must consider whether to persist with an agreement that drains $500 million from the economy monthly.”

In recent statements, Njuguna Ndung’u, the National Treasury Cabinet Secretary, hinted at a potential shift away from the government-backed fuel import credit scheme. The International Monetary Fund’s concerns over possible currency-related costs for taxpayers prompted this reconsideration. As a result, the government is contemplating a framework that involves private sector entities like oil marketing companies, banks, and credit insurance providers to oversee the scheme. This change aims to foster a more adaptable and responsive fuel import structure.

As the countdown to Wednesday’s announcement continues, all eyes remain on this critical decision. The implications for Kenya’s energy approach extend beyond the economy, touching the daily lives of its citizens.

Photo Source : Google

By: Montel Kamau

Serrari Financial Analyst

28th August, 2023