Treasury has outlined the benefits of the government-to-government deal Kenya entered with four Gulf countries in March for procurement of oil on credit.
In a statement on Tuesday, Treasury CS Njuguna Ndung'u said Kenya signed the deal on March 10 with Aramco Trading Fujairah FZE (Aramco), Abu Dhabi National Oil Company (ADNOC), Global Trading Ltd and Emirates National Oil Company (Singapore) Private Limited (ENOC).
"The G-to-G arrangement was mainly intended to address the US Dollar (USD) liquidity challenges and exchange rate volatility caused by the global dollar shortage at the time," Ndung'u said.
Ndung'u revealed that Kenya has already cleared three of the Letters of Credit (LC) with a combined value of $238,842,710 (Sh35,253,183,996) before maturity.
These are dual-purpose kerosene procured on March 17 at $72,242,033 (Sh10,662,924,070) and whose maturity is September 29, 2023.
The other is Super Petrol worth $83,804,865 (Sh12,369,598,074) procured on April 3 and maturing on September 25 and another consignment of Super Petrol worth $82,795,812 (Sh12,220,661,851) whose payment was due on October 13, 2023.
"The G-to-G arrangement has therefore been de-risked and more Financing Parties have joined in with others at advanced stages," Ndung'u said.
He said as a result of the G-to-G deal, Kenya is set to realize an accumulation of foreign reserves as demand for foreign exchange from the oil sector eases due to deferred payments for petroleum.
This, he said, would also ease speculative tendencies in the foreign exchange market which gave rise to worsened exchange volatility leading to a sharp depreciation of the Kenyan shilling against the dollar.
"Exchange rate stability and slow-down in currency depreciation support economic recovery and slow down the growth of public debt," Ndung'u said.
He said payments for the entire Dual Purpose Kerosene and the transit portion of Super Petrol and Diesel imports are made using dollars and the amounts are credited to an escrow account while the Kenyan shilling is used to pay for the local portion of Super Petrol and Diesel imports and subsequently converted into US dollars as each individual LC maturity date nears.
"Currently, the USD escrow account holds USD 1 billion while the Kenya Shillings escrow account holds Sh115 billion which will ensure timely and seamless payment of all maturing LCs," Ndung'u said.
Overall, the CS said, the G-to-G arrangement has shielded the country from exchange rate volatility or depreciation of its currency against the dollar as it has eliminated the need for about 100 oil markets to scramble for dollars in the spot market.
He said the deal has also assured the country and the region as a whole of steady petroleum as 35 cargoes have successfully been delivered.
He said under the G-to-G arrangement, the government has also managed to leverage the economies of scale to renegotiate for a reduction in the Premium and Freight costs at a time when the cost has experienced a steep hike due to reduced production by petroleum exporting countries, the ongoing Russia-Ukraine conflict and the approaching winter in the Northern Hemisphere.
"Reductions of up to USD 30 per metric ton have been realised which will greatly cushion the country going forward," Ndung'u said.