To alleviate pressure on the exchange rate, the Kenyan parliament extended the Government-to-Government (G-to-G) oil import agreement with three Gulf oil companies.
The agreement was signed with Saudi Aramco, Abu Dhabi National Oil Co. and Emirates National Oil Co. in March 2023 as a temporary measure to help mitigate foreign exchange volatility.
To stabilize fuel prices, the cabinet approved importing liquefied petroleum gas (LPG), heavy fuel oil and bitumen through joint central purchasing.
At Tuesday’s meeting, the board said the agreement would help boost the shilling and lower oil prices before the new regulations are paused.
“This arrangement has eased the monthly demand for US dollars for petroleum imports, stabilising the shilling-dollar exchange rate at KSh129 from a high of KSh 166 and reducing pump prices from KSh 217 per litre of petrol to KSh 177,” the Cabinet said in a statement.
The deal with Gulf companies includes a 180-day credit period that will allow the country to gradually raise purchase funds, eliminating the need for exporters to spend billions of dollars each month.
“This arrangement secures oil production, previously estimated at $500 million per month, by allowing payment in Kenyan shillings,” he added.
Last year, the G2G deal was temporarily replaced by a public tender, which was accused of fuelling the external crisis.
“Since the inception of the G2G arrangement, none of the 136 oil companies have entered the market to buy US dollars, which has eliminated the commercial mentality and further protected the Kenyan shilling from falling,” former CS Njuguna said in early 2024.
In January, the government announced plans to withdraw from the oil import deal, acknowledging that the deal had not worked out as it had hoped. The government said it faced problems that affected the effective operation of the vision, including the decline in domestic use of oil in the region and re-export, which led to the extension to December 2024.
In July, Uganda stopped buying oil from private Kenyan oil dealers and began importing oil directly after Uganda’s state oil company, the Uganda National Petroleum Corporation (UNOC), agreed to license petroleum products from Mombasa.
