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Treasury Cabinet Secretary Prof Njuguna Ndung’u has revealed plans by the government to disengage from the fuel import credit scheme negotiated with the largest oil company after concerns by the International Monetary Fund (IMF).
The government signed a deal with Saudi Aramco and Abu Dhabi National Oil Company earlier in 2023, to purchase oil on credit and in Kenyan currency to mitigate the dollar shortage that drove oil prices through the roof.
Saudi Aramco, which is controlled by the Saudi government, is the world's largest oil firm, with significant operations in Asia, Europe, and North America.
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CS Ndungu told the media that the government would withdraw from the programme and leave it to be controlled by private companies.
“There is no end game to this (review) because what we will do is that the government will step back and allow the market to work on its own, with those deferred LCs (letters of credit),” he said.
IMF was concerned that the government would be left exposed should it incur the cost of currency depreciation.
According to the IMF, the risk should be borne by private companies or forwarded down to consumers instead of being absorbed by the ex-chequer.
“After the initial rollout period, staff advised that the import scheme should be reconfigured so that all risks are borne by the private sector,” the international lender said.
Easing pressure on the US dollar
The deal aimed to ease pressure on the local currency and ensure that fuel retails at lower prices.
Energy CS Davis Chirchir at the time explained that the oil products will be paid in Kenyan shillings, rather than in US dollars, which will help relieve the pressure on the dollar.
This will ensure that dollars are available for other industries such as manufacturing and food security, which rely on imports or exports.
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Kenya has been spending approximately $500 million every month to import fuel, which has been straining the demand for the greenback.