State shrugs off potential risks of gulf fuel import plan on foreign exchange
The government has downplayed potential threats of the government-to-government oil deal with Gulf oil producers, emphasising that a significant portion of the imported oil is re-exported to neighbouring countries.
By this, the government says the dollars spent on imports are realised or earned from re-exports. The reassurances come as the country grapples with a looming forex payment of Sh72 billion in the month of September.
Despite the government’s assertions, experts raise cautionary flags over the potential impact on the shilling and the wider economy. David Ndii, the head of the President’s Economic Council, indicated that approximately 40 per cent of the imported oil is re-exported, resulting in a substantial influx of foreign currency.
“We re-export 40 per cent, that’s $200 million flowing into the country escrowed. Jet fuel is also paid in dollars,” he clarified.
Ndii further highlighted that the cumulative inflow of foreign currency from six months of such transactions is estimated to be $1.5 billion, which, in addition to discreet purchases, offers a degree of financial buffer until January.
“We are covered through January. There is no time the g-g will pressure the forex market. Ever,” he asserted.
The shilling has been on a losing spree falling fast trade at Sh144.8 to the dollar compared to Sh120 late last year causing pressure on the balance of payments and debt service.
However, recent reports suggest that Gulf countries have rejected a request from a delegation led by President William Ruto.The delegation had been dispatched to negotiate flexible terms for the impending payments.
In early July, officials from the Energy and Petroleum Regulatory Authority (Epra), National Treasury, and Energy Ministry embarked on negotiations in the United Arab Emirates to ease certain clauses in the existing government-to-government agreement.
This agreement, signed in April, allowed Kenya to import oil on credit, alleviating pressure on the plummeting shilling. With the repayment grace period now expired and the shilling still experiencing depreciation, the responsibility of sourcing dollars to fulfill the payments has fallen to KCB, a prominent local bank.
KCB asserts that it possesses the necessary funds to initiate the first payment to oil suppliers such as Saudi Aramco, Emirates National Oil Corporation (Enoc), and Abu Dhabi National Oil Corporation Global Trading (Adnoc).
Nevertheless, the true trial lies ahead, as subsequent months will demand the procurement of an estimated $500 million (about Sh72.5 billion) every 30 days.
