Kenya Slapped With Ksh578 Billion Oil Bill

Kenya Slapped With Ksh578 Billion Oil Bill

In September of this year, Kenya is expected to pay Ksh578 billion to three companies as part of a government-to-government oil agreement signed with Saudi Arabia and the United Arab Emirates.

In March, in response to the rising demand for the U.S. dollar, the Kenyan government launched credit imports of diesel, super petrol, and jet fuel.

At the time, Kenya was investigating methods to reduce its fuel costs, as the country was spending an average of Ksh 100 billion annually on fuel imports, putting a significant strain on its foreign exchange reserves. 

The decision to delay the first payment until September was made to ensure that importers and merchants would have access to the necessary currency during this time.

“Under the terms of the agreement, which has an initial duration of nine months (through the end of December 2023), the fuel is imported on 6-month credit, backed by commercial letters of credit (LCs) issued by domestic banks, and confirmed by international banks,” the government announced at the time.

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Within five days of receiving fuel cargo, Kenya’s line of credit system requires Oil Market Companies (OMCs) to deposit the dollar proceeds from sales of jet fuel and region-bound fuels, as well as the shilling equivalent of domestically marketed diesel and gasoline, into escrow accounts with domestic banks. 

According to a March announcement by the Ministry of Energy, the outstanding obligations of OMCs should not exceed six months’ value of fuel imports.

“Based on April 2023 prices, the total obligation incurred is estimated at around US$700 million (Ksh101 billion) per month for a total of over US$ 4 billion (Ksh578 billion) by September 2023. 

While it is the obligation of the OMCs to make payments, the Kenyan government has assumed the financial risk by way of Letters of Support. 

Saudi Aramco of Saudi Arabia, Emirates National Oil Company Group (ENOC) of Dubai, and Abu Dhabi National Oil Company (ADNOC) have supplied the petroleum. 

Kenya has not yet verified whether the oil contract will be extended past December 2023. If the contract is effective in resolving the dollar crisis, the Ministry of Energy has indicated that it will return to the Open Tender System.

Kenya Slapped With Ksh578 Billion Oil Bill