President William Ruto on Wednesday, March 1, unveiled a new oil purchasing plan that will allow the government to use diplomacy to purchase oil from friendly Gulf states at a cheap price.
In the new plan, only government-to-government purchase of oil will be allowed where the state will import oil through long-term contracts of nine months that allow payment to be done within six months.
Moreover, according to a report by the Weekly Review, participation in the tender is restricted to state-owned national oil corporations of the Gulf states, such as Saudi Arabia’s Aramco, Emirates’ National Corporation, and Abu Dhabi’s National Oil Corporation.
The plan is a departure from what the government has been using since 2015 to purchase oil through a system known as Open Tender System (OTS).
In the OTS, the tender was floated every month with 112 licensed oil marketing companies participating.
The winner of the tender would then procure oil from refineries in the Gulf on behalf of all players and invoice local Oil Marketing Companies (OMCs) depending on market share.
Once an OMC gets their invoice, they look for dollars in the local market for the bill within a week which according to Energy and Petroleum Regulatory Authority (EPRA) , largely contributes to the dollar liquidity crisis in the country.
In the new plan according to EPRA, however, because of the extended payment window, the country will be able to meet the demand for dollars and ease the foreign currency shortage which the country has been grappling with for several months
Energy and Petroleum Cabinet Secretary Davis Chirchir stated in a past interview that “When products arrive in the port of Mombasa, we pay about Ksh64 million within three days. That causes significant pressure."
Chirchir told the Weekly Review the government was using the petroleum sector to resolve a macro-economic problem.
“We cannot keep procrastinating because the shilling is continuing to slide. Monetary policy alone will not give us the stability of the shilling that we need,” Chirchir stated.
The move however rattled stakeholders in the oil industry who are questioning whether it will indeed reduce oil prices.
Earlier in February 2023, Russia announced that it will disrupt the world’s oil supply by slashing production by 500,000 barrels per day a move that could lead to an oil shortage and subsequently an increase in prices.
The price of 1 litre of petrol in Kenya is retailing at Ksh179.
