Energy and Petroleum Cabinet Secretary Davis Chirchir, on Tuesday, July 11th, revealed that the government had renegotiated the terms of the government to government oil deal amid huge speculation on the initiative's efficacy considering that pressure on the Kenyan shilling had not eased since the deal was struck.
Appearing before the Senate Departmental Committee on Energy, Chirchir stated that the Kenyan government has struck a deal with the three Gulf oil firms, with the aim to lower the cost of the fuel supplied on credit.
According to the CS, the government had renegotiated the deal to remove the confirmation charges slapped on the letters of credit secured from banks and premium freight expenses.
This deal is expected to shield consumers from missing out on the global drop in fuel prices that other countries are experiencing.
When pressed to justify whether the deal had achieved its intended purpose, Chirchir defended the deal saying the agreement had lived up to its billing with regards to easing foreign exchange pressure on the Kenyan shilling.
Following the re-negotiated deal, Kenyans are expected to experience cheaper fuel prices which the CS stated will alleviate the already tough economic situation.
Contentious Deal
The CS told lawmakers the deal was struck last week, but remained tight lipped on the finer details of the agreement including how much the Kenyan government will fork out for the remainder of the existing contract.
A week before, CS Chirchir had led a delegation to Dubai, as the government sought to soften repayment terms of the fuel the government planned to acquire on credit.
“The suppliers were willing to bring down the premiums to allow us to get competitive. We were fairly successful in pushing for the reduction of the freight and premium and we will see improvement going forward,” Mr Chirchir told the legislators.
According to Chirchir, Saudi Aramco, Enoc and Adnoc also agreed to remove the confirmation charge on the letters of credit that is calculated at the rate of 0.7 percent of the product.
Global Landscape
The global crude prices had been shrinking from April and hit $75 per barrel in July 2023, but Kenya missed out on the benefits due to the contractual obligations signed under the deal to import fuel on credit.
While the deals were projected to ease foreign exchange pressure on the Kenyan shilling, the desired effect was not achieved with the Kenyan shilling ticking higher over the following months.
As of Wednesday, July 12, the Kenyan shilling was trading at 141.30 units to the dollar compared to 133.39 units in April when the first shipment of fuel arrived in the country.
VAT
The development also came amid a difficult period in the energy industry when a section of oil marketing companies had reported a decline in the consumption of petroleum products. The companies attributed the outcome to the government's decision to increase fuel Value Added Tax (VAT) to 16%.
However, it is instructive to note that the High Court temporarily suspended implementation of this tax.
