Kenya plans to extend the government-to-government oil import deal in what could see it go into next year, even as the shilling remains stable against the US dollar.
This comes as the country courts Rwanda into the deal to keep Tanzania away from capturing the land locked country's market after Uganda opted to import its own refined products.
According to the Energy and Petroleum Regulatory Authority (EPRA), more Oil Marketing Companies (OMCs) are set to be on-boarded, as part of de-risking the transaction as the contract nears its end.
“The pool (importing companies) will keep increasing and we expect more to be brought on board,” EPRA director petroleum and gas, Edward Kinyua, said during a media roundtable in Nairobi on Thursday.
However, the regulator hinted at a possible extension of the deal with the Gulf-based oil giants Saudi Aramco, Abu Dhabi Oil Company (ADNOC), and Emirates National Oil Company (Enoc), in what is said to be a strategy by the National Treasury to keep hands off the forex reserves, which are hugely used for debt repayment.
This will be the second extension after a similar move in September 2023, which pushed the deal to the end of this year.
“You cannot just cut off the transactions. There must be a slow exit plan,” EPRA Director General Daniel Kiptoo noted yesterday.
The last Letter of Credit in the current contract is expected to be paid in June next year.
In February, One Petroleum Ltd and Asharami Synergy joined Galana Oil, Gulf Energy and Oryx Energy in the importing league, taking the total number of OMCs in the deal to five.
“The appointment of the nominated OMCs is the prerogative of the international oil companies. They can pick from any of the OMCs we have licensed,” Kiptoo told the Star.
The addition of companies in the deal comes even as the Auditor General revealed the country was still having monthly shortfalls of 220,000 metric tonne, which has left a lucrative gap to be tapped by individuals and other players outside the deal.
According to the Auditor-General’s 2022-23 report on the national government, the aggregate supply qualified for all importers amounted to 730,000 metric tonnes per month against a required 950,000 metric tonnes.
“No details of how the supply shortfall would be met,” the Nancy Gathungu led institution noted in its report.
Meanwhile, sources within the Energy Ministry indicate Kenya is riding on the fall-out between Rwanda and Tanzania over the latter’s involvement in the DRC peace mission, to secure an export market for its petroleum products and trade volumes through the Port of Mombasa.
“Rwanda has been hugely using Dar es Salaam and the Central Corridor but Rwanda is keen to increase its use of Mombasa and this is what Kenya is looking at tapping,” the source told the Star, on condition of anonymity.
Kenya has lost grip on the Ugandan export market after the neighbouring country opted to enter into a government-to-government deal, which will see it bring in its products, ending dependency on Kenya.
During last week’s President Yoweri Museveni’s visit to Nairobi, the two countries signed a tripartite agreement that will see Uganda National Oil Company (UNCO) import products through Mombasa.
The plans by Kenya to extend its deal comes amid concerns raised by the IMF over exposure to risks, on the back of struggles to raise enough dollars to meet payments, with the scheme reported to yield little benefits mainly on curing the dollar shortage and easing pressure on the shilling.
Under the deal, the appointed OMC owns the product, which it receives at the Port of Mombasa and sells to peers in shillings before being supplied to retailers.
The shillings paid by local oil marketers are kept in escrow accounts managed by three local banks, which takes 180 days to collect enough dollars to pay suppliers in the Gulf.
IMF estimates taxpayers’ exposure to the deal at around $400 million (Sh53 billion). According to the IMF, the G2G oil import scheme continues to evolve but potential risks, including forex market segmentation, remain.
“A reasonable estimate of the government contingent liabilities stemming from the fuel import scheme is around 10 per cent of the maximum private sector obligation to fuel exporters or around$ 400 million (0.4 per cent of GDP),” IMF said in a recent report.
The scheme, which was initially for nine months, was extended for another 12 months to December 2024, including negotiating some favourable costing terms.
By mid-November 2023, oil imports under the scheme amounted to about $3.7 billion (Sh490.3 billion), and letters of credit worth over $784 million (Sh103.9 billion-current exchange rate) had been settled.
The exposure comes mainly on a volatile forex market, where despite the shilling gaining following a successful Eurobond buyback, it is still weak compared.
The deal entered in early 2023 was meant to help curb dollar demand at the time that the country was facing a shortage.