Oil dealers assert State wrangling to Convert debt to Bond

Because the Kenya Kwanza administration is running out of room in its budget and is therefore less able to pay off outstanding local debt, the government coerced oil marketers into issuing a bond in the amount of Sh45.8 billion that was owed in arrears on the fuel subsidy.

According to oil marketers, state officials informed them of their decision and warned them that if they rejected it, they would lose out on the payment of the billions.

Although most of the dealers are reported to have declined, the government claimed earlier this month that it had reached an agreement with oil marketers to convert the Sh45.8 billion in subsidy arrears into a three-year government paper.

The conversion is expected to lessen the burden of making a one-time payment of billions of shillings as the government scrambles to avoid missing payments on its foreign debt without interfering with other operations.

“Companies were either to convert the debt to bonds or be willing to wait longer without any defined timelines. This came from the government but was made to look like it came from oil companies through the Petroleum Institute,” one of the executives said.

“That (bond) was the only option on the table, otherwise it (Sh45 billion) goes the yield shift route,” said another oil dealer.

When we questioned Treasury Principal Secretary Chris Kiptoo about the assertion, he did not respond.

Last week, the first portion of the bond, which aims to raise Sh17.5 billion, was sold at a rate of 14.22 percent.

The remaining Sh28 billion bond will be issued in two instalments starting in the second week of July, with the government acknowledging that splitting the bond was necessary due to the Exchequer’s declining fiscal space for the year.

Fuel stabilization scheme compensation has been a challenge for the Treasury since it was implemented in April 2021.