Kenya will from next month start importing fuel on credit of up to one year from the United Arab Emirates to ease pressure on dollar demand amid uncertainty over its impact on local pump prices.
Energy and Petroleum Cabinet Secretary Davies Chirchir says the government-to-government deal will see Kenya import 30 percent of its monthly fuel requirements through the State-owned National Oil Corporation (Nock).
The imports, which will come through a credit of between six months and a year, are expected to ease a crisis in the foreign exchange market given that oil shipments account for 28 percent of Kenya’s monthly imports.
State officials were guarded on how the shipment will affect fuel prices in Kenya amid concerns that the longer credit line could wipe out the benefits of buying diesel and petrol in large quantities.
Pump prices have remained unchanged since November, with a litre of super petrol retailing at Sh177.30 in Nairobi and diesel (Sh162 per litre), up from Sh106.99 and Sh96.40 respectively in February 2021.
“We will only know for sure (the effect on pump prices) once the bids are opened and evaluated,” Daniel Kiptoo, the director-general of the Energy and Petroleum Regulatory Authority (Epra), told the Business Daily on Wednesday.
But the regulator reckons that Kenya could benefit from discounts due to purchase of fuel in bulk.
Presently, oil dealers buy petrol and diesel from scores of refineries to feed the Kenyan market, denying the country the benefits of economies of scale.
“The fact that we are moving from spot purchases to a term contract, we are likely to benefit from economies of scale,” Mr Kiptoo added.
But other officials were fretful about credit terms on local pump prices, adding the deal is aimed at easing the crisis in the currency market rather than lowering petrol and diesel prices.
“This is likely to increase prices because of the longer credit period,” said a State official who sought anonymity due to the sensitivity of the matter.
The shilling on Wednesday hit a new all-time low against the greenback after breaking below the 127-per-dollar mark, setting up consumers to costly imported goods such as cars, electronics and machinery as well as power bills.
Firms have also struggled to access dollars in a market where manufacturers have repeatedly raised the alarm over the scarcity of the US currency.
But the Central Bank of Kenya (CBK) governor, Patrick Njoroge, has always insisted that Kenya has sufficient foreign currency to meet demand, brushing off manufacturers who warned a shortage of dollars may create “a parallel shadow market”.
The Energy ministry says the importation of fuel on credit is mainly aimed at propping the shilling against the dollar.
“For the products that will come in April and May, they will come with more government support and deferred payments so that we significantly reduce the pressure on the dollar,” Mr Chirchir said on Wednesday.
“For the deferments, we are looking at anything between six months and one year. We will be doing a lumpsum payment every six months.”
Sources familiar with the matter say Abu Dhabi National Oil Company (Adnoc) — the State-owned oil company of the United Arab Emirates — will be supplying the fuel.
Adnoc is among the biggest oil companies in the world, with a production capacity of four million barrels per day last year. The company plans to increase this capacity to five million barrels per day by 2027.
Nock, formed to stabilise and influence fuel prices, has largely been forced to follow the dictates of the market controlled by private players.
It was originally mandated to import 30 percent of the country’s petroleum products, including LPG, but it lost its rights when the government opened the importation market to private firms in the 1990s.
Nock will ship in 30 percent of Kenya’s super petrol, diesel and kerosene and the imports will also be used to provide strategic stocks for the country and alleviate the shortage of the commodities due to disruptions globally.
It will boost Nock’s cash flows in an industry where it has struggled to keep pace with multinationals.
Currently, the Ministry of Petroleum and Epra oversee the importation of petroleum products through the Open Tender System where the lowest bidder is awarded a contract to import on behalf of the other oil marketing companies.
The UAE import deal will hand Nock a lifeline at a time growing losses have hurt its ability to compete with well-funded multinationals such as TotalEnergies, Rubis Energy and Vivo Energy.
Vivo, a retailer of Shell-branded fuel products, dominates the market with a share of 23.8 percent followed by TotalEnergies at 17 percent and Rubis (10.02percent). Nock is ranked 10th with a 2.2 percent market share.