Kenya is expected to pay Ksh578 billion to three Gulf companies this September as part of an oil deal signed between Kenya and the governments of Saudi Arabia and the United Arab Emirates.
According to documents seen by Kenyans.co.ke, payment for the first consignment of the fuel products delivered earlier this year is maturing this week, with the government expected to funnel the Ksh578 billion ($4 billion) to Saudi Aramco of Saudi Arabia, Emirates National Oil Company Group (ENOC) of Dubai, and the Abu Dhabi National Oil Company (ADNOC).
“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 initial government documents show.
Instructively, Kenya's line of credit system requires Oil Marketing Companies (OMCs) to deposit the dollar proceeds from sales of jet fuel and region-bound fuels equivalent of domestically marketed diesel and gasoline, into escrow accounts with domestic banks within approximately 5 days of receiving fuel cargo.
“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," reads the document.
To address the escalating demand for the U.S. dollar, the Kenyan government in March began importing diesel, super petrol, and jet fuel on credit.
At the time, Kenya was exploring ways to cut its fuel costs, considering that the country was spending an average of Ksh 100 billion on fuel imports, putting immense pressure on its foreign exchange reserves.
The decision to delay the first payment until September was made to provide traders and importers with interim access to the necessary currency during this period.
According to the Ministry of Energy's announcement made in March, OMCs' outstanding obligations are expected to reach a maximum of 6 months' worth of fuel imports.
While the responsibility for making payments lies with the OMCs, the Kenyan government has assumed the financial risk through Letters of Support.
Kenya has not yet confirmed whether the oil contract will be extended beyond its initial expiration date in December 2023.
The Ministry of Energy indicated that it would return to the Open Tender System if the contract successfully alleviates the dollar crisis.
