KENYA has announced the extension of its oil supply agreement with three Gulf-based companies, Saudi Aramco, Abu Dhabi National Oil Company (ADNOC), and Emirates National Oil Company, to manage the demand for dollars, according to the Energy and Petroleum Regulatory Authority (EPRA).
The East African nation initiated this agreement in March, shifting from an open tender system where local companies bid monthly to import oil. The extension of the deal, now set to run until December 2024, arises from ongoing negotiations aimed at reducing freight and premium costs, explained Daniel Kiptoo, the head of EPRA.
Kiptoo emphasised that the deal has played a pivotal role in lowering the cost of transporting oil to Kenya and reducing the premiums paid to suppliers. Additionally, it offers a unique advantage by providing 180-day credit terms. This credit period enables Kenya to accumulate the required dollars gradually for oil imports, eliminating the need for approximately $500 million in monthly payments.
However, currency traders have expressed scepticism regarding the effectiveness of this strategy, characterising it as a temporary solution. A senior foreign exchange trader at a commercial bank stated, ‘It is still not lost on us that it is a stop-gap measure, whichever way you look at it.’
The Kenyan shilling has faced persistent pressure from the dollar, although the rate of depreciation has slowed in recent months. This contradicts President William Ruto’s prediction in April that the shilling would strengthen significantly.
Critics have partly attributed the surge in retail petrol prices to the government’s oil import agreement, in which the government acts as the guarantor. Currently, a litre of petrol is priced at KSh211 ($1.43), a significant increase from KSh160 a year ago when President Ruto assumed office. The government further exacerbated the situation by doubling the fuel tax in July.
Government officials and ruling party legislators have defended President Ruto against criticism, arguing that international oil prices, which have risen in recent months, are beyond the country’s control. However, the opposition has rejected this argument, intensifying the debate over the impact of the oil import agreement on Kenya’s economy.