What the Kenyan Fuel Import Agreement Entails

Beginning this month, Kenya will be importing diesel, super petrol, and jet fuels on credit from the United Arab Emirates and Saudi Arabia in an effort to reduce the demand for the U.S. dollar and stabilize the value of the local currency, the shilling. While some have expressed doubts as to how this will lead to lower pump prices, the government insists that this arrangement will provide immediate relief.

Which governments and oil firms are taking part in this deal?

This agreement between the Kenyan government and the governments of the United Arab Emirates and Saudi Arabia will enable three state-run oil businesses from the two nations to appoint certified oil companies in Kenya to bring in fuel for local and transit markets. The purpose of the government-to-government understanding is to provide assurance to the oil firms in the source countries about the safety of payments.

What does the government aim to achieve through this deal?

The deal is meant to ease pressure on the dollar demand. It is expected that oil businesses need $500 million to pay for fuel imports every month, with the industry accounting for 28 percent of the import transaction.The government says that making payments in the seventh month will significantly ease the pressure on the dollar, allowing other traders and importers to access the currency for their bills.

How does this deal help to address the dollar shortage?

This temporary solution is intended to reduce the need for oil companies in Kenya to compete for dollars each month in order to pay for their fuel imports, as well as ease the demand for the US dollar and help support the falling value of the Kenyan shilling. It is expected that, by providing a six-month credit period, the pressure on the oil-importing businesses to acquire dollars will be reduced.

Which criteria will be utilized to select the domestic oil marketing companies (OMCs) responsible for importing fuel on behalf of others?
Under the Open Tender System, foreign oil companies (who are supplying fuel on credit) will nominate a licensed local OMC that has demonstrated competence in fuel imports.

What is the reason for the Kenyan government allowing foreign-owned oil companies to select the local fuel dealers in charge of importing fuel for the rest of the Kenyan market?

The Ministry of Energy and Petroleum has not provided a comprehensive explanation for why foreign oil firms will be handpicking local OMCs instead of using the Open Tender System.

The ministry merely stated that Saudi Arabian and United Arab Emirates oil companies have been working with local OMCs for many years and are therefore better equipped to select them for this project.