Kenyan consumers face a months-long extension of the government-backed fuel import deal with Gulf oil majors.
Kenyan consumers face a months-long extension of the government-backed fuel import deal with Gulf oil majors, denying motorists, households and industrial users relief from falling petroleum prices in the global markets.
The extension follows a change in terms of the contract from the earlier position that would have seen the deal lapse at the end of this year.
The new agreement will require Kenya to continue importing fuel from the three Gulf majors until an undisclosed volume of fuel that was stipulated in the original contract is exhausted.
The change in contract terms will help the government to avoid paying penalties running into millions of dollars for failing to take up the pre-agreed volumes, but it will deny consumers lower prices given the fall in international prices of crude oil.
Government-backed deal
Two consulting firms hired to review the government-backed deal in August concluded that consumers were overpaying by Sh2.70 per litre of petrol compared to what they would have paid under the Open Tender System (OTS).
Energy and Petroleum Cabinet Secretary Opiyo Wandayi confirmed that the contract has a stipulated minimum quota of fuel that Kenya must import, but did not disclose the actual volume.
“The current contract on importation of refined petroleum products under the Government-to-Government arrangement is based on quantity rather than time or term. As such, the contract will terminate once the agreed volumes are lifted. Variations in the monthly volumes were, therefore, foreseen and well catered for,” Mr Opiyo told Nation.
Kenya has since April last year been buying fuel on a 180-day credit period from Saudi Aramco, Abu Dhabi National Oil Corporation (Adnoc) and Emirates National Oil Company (Enoc).
Gulf Energy, Galana Energies and Asharami & One Petroleum are the local firms importing fuel and paying in dollars. The rest of the Kenyan oil marketers pay for their cargoes in Kenyan shillings.
The government-backed deal was meant to stabilise the free-falling shilling by ending the monthly demand of over $500 million dollars that oil dealers needed to pay for fuel in the spot markets.
The deal has significantly propped up the shilling to a high of 129.21 units to the dollar yesterday from a low of 160 units at the start of this year.
But concerns have been raised that despite the impact of the deal on the shilling, consumers are losing out due to the fixed nature of the prices of the imported fuel.
The three Kenyan oil firms are buying the fuel at fixed premiums of $90 and $88 per barrel of petrol and diesel respectively.
On the contrary, fuel prices have been dropping with a barrel of crude retailing at $83.80 in September, compared to $87.28 in September last year.
“For the OTS mechanism, the average suppliers’ premium for January-February 2023 is Sh4.51 per litre. For the government-to-government mechanism, the average suppliers’ premium for June to July 2024 is Sh7.21 per litre or Sh2.70 per litre higher than the OTS mechanism for the sampled months,” Channoil Consulting and Kurrent Technologies said.
OTS fuel import model
Prices of petrol in the global markets dipped to $695.05 per tonne compared to $804.16 in October last year, while those for diesel fell to $600 per tonne from $839.26 in the same period.
The drops coupled with a strengthening shilling against the dollar and other major global currencies indicate that pump prices could have fallen by even higher margins under the OTS fuel import model.
Pump prices last month dropped by the highest margin in 19 months, with a litre of petrol falling by Sh8.18 to Sh180.66 in Nairobi while that of diesel fell by Sh3.54 to Sh168.06.
Kenya had, while negotiating the deal with the Gulf oil majors in late 2022 and early last year, included Uganda as part of the market.
But Uganda bolted out a year after Kenya started the imports, a move that the International Monetary Fund (IMF) says has exposed taxpayers to potential losses in the form of compensating the Gulf oil firms.
“Imported volumes so far are short of the contracted amounts due to a decline in fuel consumption both in the domestic and re-export markets. Given the contracted volumes, the authorities could face contingent liabilities from a decision by Uganda,” IMF said last week.
Uganda had accused Kenya of failing to consult while inking the deal with the Gulf firms. The neighbouring country also blamed Kenya for the expensive fuel in Kampala.
But Uganda has the costliest fuel in the East African region, lifting the lid on a major underside of the country’s decision to ink a five-year deal with Vitol Bahrain.
Mr Wandayi last week led a high-level Kenyan delegation for talks with President Yoweri Museveni. But details of the meeting remain cagey.
“Today, I received a Kenyan delegation at State House Entebbe, headed by Hon. J. Opiyo Wandayi, Cabinet Secretary for Energy and Petroleum, to discuss regional advancements in petroleum product importation,” Mr Museveni said last week without giving details.
