The Government on Monday, March 13, announced that it had signed and closed a deal with a Saudi Arabian company and a Dubai-based company to supply oil to the country on loan.
The deal, according to the Energy and Petroleum Cabinet Secretary Davis Chirchir, would allow the government to pay for the oil in Kenyan shilling, a move he stated would reduce the strain on the supply and demand of the currency in the country.
He added that Kenya will still buy oil at the same price, only on credit and therefore will create some breathing space from a foreign exchange standpoint.
“We have closed and signed a deal with Aramco of Saudi for the supply of two products every month for a period of six months.
“Additionally, we closed a deal for the supply of Super with a Dubai-based company for three cargos every month for the next six months,” Chirchir stated.
However, speaking to Kenyans.co.ke on Tuesday, March 14, Governance Expert and Economist Ben Mulwa noted that the move will not have any impact on the prices of oils as sold to motorists.
Mulwa explained that the Kenyan Shilling was relevant for use in Kenya and would still be converted into dollars which is the standard currency for the global market.
“There is no evidence that the oil prices will actually be cheaper because the prices have been rising steadily over the past months.
“Ultimately, because the Kenyan Shilling is a currency that is used in Kenya, it will still have to be converted,” Mulwa stated.
Moreover, the deal was signed despite a petition filed at the High Court on Monday, March 6, to challenge the international tender.
Four petitioners noted that oil retailers were excluded from the bidding process for the tender that would supply all petroleum products consumed in Kenya.
“The move to award 100 per cent market share of all the petroleum products consumable in Kenya on the issue that it may pose a serious national security risk in case of sabotage by the proposed supplier," the petition read in part.
Mulwa added that the deal was ill-informed because it would hurt oil marketers who will be forced out of business.
Instead, he stated that it was important for the government to support the National Oil Cooperation which had been struggling financially.
“The petition may have an impact because the courts will now come in. The government-to-government deal locks them out of the conversation despite it not having a big impact on the growth of the economy.
“It was not the right decision because the government could have made a better deal with the oil marketers to enable them to also have a stake in it,” Mulwa added.
The new plan is a departure from the system the government has been using since 2015 known as Open Tender System (OTS) which 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 contributed to the dollar liquidity crisis in the country.
