Kenyans to Pay KSh 2.7 More per Liter of Petrol and Diesel as Government Extends Oil Deal with Gulf Countries

• The Government-to-Government (G2G) oil import agreement between Kenya and the Gulf countries was expected to expire in December 2024
• But Kenya and three international oil producing companies changed the terms of the contract to extend it beyond 2024.
• Energy Cabinet Secretary (CS) Opiyo Wandayi explained that the agreement will only end once the volume of fuel agreed in the original contract is exhausted
• Speaking to TUKO.co.ke, Petroleum Sales Association of Kenya (POAK) president Martin Chomba said the extended period should clear the volume of fuel for Uganda exiting the agreement.

TUKO.co.ke journalist Wycliffe Musalia’s financial, businessTechnology and climate reporting providing in-depth insights into Kenyan and global economic trends.

Kenyans will continue to fill the gap created by rising fuel prices under Government to Government (G2G) Oil import agreement with Gulf countries.

G2G oil import agreement Kenya and three international oil producing companies were expected to expire in December 2024.

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However, Kenya and three companies (Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company) changed the terms of the contract to extend it beyond 2024.

According to the Nation, the Cabinet Secretary (CS) for Energy, Opiyo Wandayi, clarified that the agreement will only end once the volume of fuel agreed in the original contract is exhausted.

“The G2G oil import agreement is based on quantity, not time or maturity. We will terminate the contract only when the agreed volumes are increased,” Wandayi said.

Why is Kenya extending G2G beyond December 2024?

In an exclusive interview with TUKO.co.keMartin Chomba, chairman of the Petroleum Outlets Association of Kenya (POAK), explained that the extended period should clear the volume of fuel required for oil sales. UgandaWhich The signature was withdrawn months later Agreement in March 2023.

Chomba noted that Kenya would risk being penalized if it terminated the agreement before consuming the volume of oil imports agreed upon in the G2G arrangement.

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He estimated that the volume in question was 600 million liters of petroleum products per month, which the country imports for consumption and exports to other countries such as Uganda.

“According to oil market data, the G2G oil import arrangement between Kenya and the Gulf countries was fixed at a certain volume, and due to Uganda’s exit, this led to a deficit. The government agreed with the companies to extend the period to avoid criminal sanctions. What would go to Uganda? The estimated volume is 600 million liters of fuel for Kenya and Uganda,” Chomba said.

How much are Kenyans paying under the G2G oil deal?

An audit report shows that Kenyans I pay 2.7 KSh more per liter for gasoline Under G2G regulation compared to the previous Open Tender System (OTS).

The oil market expert stated that the high price will continue until the G2G oil import agreement expires, noting that the arrangement operates under fixed premiums, meaning Kenyans are deprived of the benefits of the decline in oil market prices.

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“The premium is fixed at $90 (KSh 11,619) and $88 (KSh 11,361) per barrel of gasoline and diesel respectively. When the prices of petroleum products fall in the international market, this change will not be reflected in the Kenyan market.” in question.

In September 2024, fuel prices on the international market fell to $83.80 per barrel of crude oil (KSh 10,819) from $87.28 (KSh 11,268) reported in the similar period in 2023.

Did Kenya’s G2G oil deal achieve its goal?

Chomba added that the G2G agreement achieved its goal despite the high pump prices in the country. stabilize the shilling.

With the shilling in freefall, he warned that the exchange rate could reach KSh180 per head if Kenya stuck to the OTS system. US dollarA move that could cause fuel prices to skyrocket.

“G2G stabilized the exchange rate. It could have gone up to KSh 180 per US dollar, which could have increased fuel prices,” Chomba explained.

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Before the G2G regulation, Kenya’s monthly fuel demand rose above the $500 million (KSh64.6 billion) needed by oil marketers, putting pressure on the shilling.

Energy and Petroleum Regulatory Authority (EPRA) Director General Daniel Kiptoo said: TUKO.co.ke The G2G oil agreement aims to solve the macroeconomic problem, not the oil problem.

“We appreciate that the agreement was not made to solve an oil problem but to solve a macro problem. The G2G regulatory scheme has really stabilized the shilling,” Kiptoo said.

How is Kenya paying for its G2G oil import deal?

Agreement payment terms included placements from selected oil marketers and commercial banks offering letters of credit (LC).

About five banks, including Equity Group and United Bank of Africa, have signed the agreement to issue LCs to oil marketing companies.

However, three lenders walked out of the deal due to the competitive nature of the LC issuance.

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What to know about the G2G oil deal

Source: TUKO.co.ke