The Kenyan government earlier this year made a sudden policy shift from the open tender system (OTS) of importing petroleum products for the local and the East African markets.
It entered into an initial nine-month contract with Gulf oil companies for the import of petroleum products into the country on a six-month credit in a bid to curb the shilling depreciation created by the dollar demand by the industry every month.
Nine months down the line the shilling seems to be getting worse.
The government-to-government deal came with a fixed premium, which was way above the market compared to what a competitive bid would have offered the industry if we continued with the OTS system that had been in place for close to a decade.
This new system of petroleum importation has had an unprecedented negative effect on the industry in Kenya and the larger East African region.
Firstly, the arrangement involved only three oil marketing companies importing petroleum products into the country. This put some other participants whose main business was petroleum import out of business.
This negotiated premium has also had a huge impact on the final price at the pump in Kenya, Uganda, South Sudan and the Democratic Republic of Congo.
It has led to depressed demand for petroleum products in the country and the region, forcing oil marketers to dispose of their products below cost and make huge losses.
Across the border, the Ugandan through UNOC (Uganda National Oil Company) is planning to Import its own products meant for the Uganda Market cutting out Kenyan Dealers.
There will be job losses for entities based in Kenya who will shift to Uganda as there is no basis for having their offices in Kenya.
There will be a significant drop in the monthly flow of dollars from Kenya estimated at around $150 million and a massive drop in the collection of taxes due to the exit of many players in the market as no business can sustain lossmaking in the long run.
The intention of the government-to-government system was to stabilise the shillings but it has failed to do so and, in the process, created more problems. The government should cancel this arrangement and revert to the competitive open tender system to stabilise the industry in Kenya and the region
Once Uganda sails away, be sure that South Sudan and Congo follow suit.
The writer is an oil and gas consultant and founder of Oil and Gas Insight Kenya: [email protected]
