The International Monetary Fund (IMF) has raised concerns over the government-to-government (G2G) oil importation deal that the government inked with the Gulf region and has asked for clarity over the matter.
In the IMF’s Staff Report following the conclusion of the 7th and 8th Reviews of Kenya’s USD 3.6 billion (about Ksh460.8 billion at the current exchange rate) programme, the monetary lender has asked President Ruto to issue a way forward on the G2G deal, whose future remains unclear.
This is after the government had earlier in the year stated that Kenya would exit the oil importation deal on December 31, 2024. The government had entered an oil agreement with four Gulf companies in an attempt to address the scarcity of US dollars that was prevalent then. President William Ruto at the time had claimed that the move would stabilize foreign exchange rates.
However, the government took a U-turn on its initial move after the G2G deal encountered a myriad of challenges. Key among these challenges was the distortions caused to the forex market thus necessitating the termination.
“The government intends to exit the oil import agreement, as we are aware of the distortions it has created in the forex (FX) market,” the Treasury noted.
The IMF’s concern stems from the fact that Kenya’s oil import industry is set to be a responsibility of the private sector in the long run but so far no communication on the timeline of this development has been issued by the government.
“The authorities envisage the private sector eventually taking over the entire operation of the scheme but have not committed on the timeline,” the report stated in part.
The Staff Report also flagged that imported volumes of oil throughout the course of the G2G deal had fallen short of the contracted amounts due to a decline in fuel consumption both in the domestic and re-export markets. This was further compounded by a decision from Uganda, an important destination for oil re-exports to source its fuel imports directly. The government had earlier in the year announced the shortcoming and thus corroborated IMF’s findings.
“In the first six months, the actual average monthly import volumes fell short of the minimums agreed under the arrangement. This was due to lower demand from our domestic market as well as from the regional re-export markets,” the government noted.
The IMF also noted that under the G2G importation scheme, more banks have been participating even though activity remains concentrated in one large bank with sizable government shareholding.
“Under the G2G oil importation scheme, more banks are participating, although activity remains concentrated in one large bank with sizable government shareholding,” the report noted.
The current G2G arrangement was introduced to replace the One Tender System(OTS) which allowed local oil marketers, subject to winning a one-month tender, to import fuel and then to supply to others for retail distribution across the country.
When introducing the G2G deal, the government laid blame on the OTS for creating persistent US dollar shortages in the market, claiming that the new system would provide solutions to the forex market which was experiencing a decline in dollars and depreciation of the Kenyan shilling.
