Kenya has paid Sh210 billion for oil imported under G-to-G

Kenya has paid over 1.4 dollars (Sh210 billion) to Gulf companies under the government-to-government import credit scheme meant to address exchange rate volatility, Senators were told on Monday.

Members of the Senate Standing Committee on Energy further heard that Gulf Energy and Galana Energies are yet to pay US$1.5 billion (Sh225 billion) for oil imported since March this year.

CEO Paul Limoh (Gulf Energy) told the committee his company has paid US$ 686 million to Emirates National Oil Company.

“The amount paid is for Letters Credits which have matured since March,” he stated.

He noted that Gulf Energy is yet to pay US$1 billion (Sh150 billion) to Emirates National Oil Company.

He revealed that KCB was the initial bank that financed the transactions for his company but I&M, Diamond Trust and UBA joined later on.

Oryx Energies Ltd CWEO Angeline Maangi said her company has paid US$247 million (Sh37 billion) to Aramco Trading Fujairah FZE (Aramco).

She noted that the amount pending stands at US$161 million (Sh24 billion).

Galana Energies CEO Anthony Munyasya told senators his company has paid Aramco US$ 76 million (Sh11.4 billion) and has an outstanding amount of US$401 million (Sh60 billion).

Limoh, Maangi and Munyasya had appeared before members to explain whether the G-to-G arrangement had eased pressure on the shilling.

“We are not experts but the rate at which the shilling is depreciating is much slower now,” said Limoh.

Narok Senator Ledama Olekina expressed concern that the amount pending is too huge. “Let us hope that there will be no fuel shortage,” he stated.

President William Ruto’s administration has altered oil importation processes in Kenya by turning to a government-to-government (G-to-G) arrangement to minimise pressure on the country’s declining foreign exchange reserves.

The system, a departure from the prevailing one-month settlement system, is part of a government-to-government deal seeking to ease pressure on the local currency currently depreciating against the dollar.

The government announced that it would start importing diesel, super petrol and jet fuel on credit in a deal meant to ease demand for the dollar and prop up the shilling.

It was estimated that oil companies needed US$500 million to pay for fuel imports every month, with the sector accounting for 28 per cent of the import deal.

Kenya Kwanza argued that adopting G2G would significantly ease the pressure on the dollar, allowing other traders and importers to access the currency for their bills.

Government-to-government procurement is a method of procurement that occurs where a bilateral or multilateral agreement is entered into between the Government of Kenya and a foreign government, agency, entity, or multilateral agency.

Usually, such an agreement would be a financing agreement such as a concessional loan or grant concerning a project or supply of goods and services.

The G2G procurement method is not unique to Kenya.

Early this year, it was reported that Britain and Iraq had entered into an arrangement wherein Britain would advance 10 billion pounds in loans to finance infrastructure projects in Iraq over 10 years.

One of the conditions of the loan was that it would only benefit British companies.

In Kenya however, G2G is not regulated under the procurement law and raises queries about its compliance with the Constitution of Kenya.

The Constitution of Kenya in Article 227 requires that a public procurement system ought to be fair, equitable, transparent, competitive, and cost-effective.

The Standard Gauge Railway marked the introduction of G2G procurement in the country.

The project was financed through concessional loans and grants from a foreign government.

Terms and conditions imposed by such concessional loans and grants were therefore not subject to the procurement law.

The project sparked controversy and the Law Society of Kenya filed a case in the Kenyan High Court challenging the procurement method used for the SGR.

LSK cited lack of competition as one of the grounds for the challenge.