Government cagey on ending fuel deal with Gulf countries

Boda boda fuelling at a petrol station in Nairobi. [File, Standard]

The government is non-committal on ending its fuel deal with Gulf countries, with Energy Cabinet Secretary Davis Chirchir saying he will leverage on the agreement to review August prices.

The CS, who met with oil marketers on Monday, insisted that the government-backed agreement to purchase fuel has been critical in stabilising the shilling.

The government in March struck a deal with Saudi Arabia and the United Arab Emirates where three firms - Saudi Aramco, Emirates National Oil Company and Abu Dhabi National Oil Company (Adnoc) - to supply the country with petroleum products on a six-month credit period to ease demand for the US dollar and lower pressure on the shilling. 

The Gulf companies nominated a local firm to handle business on their behalf in Kenya, including selling products to local oil firms in local currency, converting this to dollars over time and paying the suppliers once the six-month credit period expires.

Chirchir said were it not for the deal, the cost of a litre of petrol would possibly be retailing at Sh250.

"It is a question we all need to ask ourselves if it (the deal) has been helpful or not," he said.

“Yes, I think we have addressed the depreciation of the shilling. Who knows, we could be at 180 against the US dollar." He said from the analysts the ministry works with, the deal has been fruitful.

The deal was touted by President William Ruto as one that would stem depreciation of the shilling due to increased demand for the dollar.

However, months down the line, the shilling has fallen to as low as 150 against the dollar, a record rate.

The CS believes that the situation would have been worse if it were not for the agreement.

In the spot market, he said, the longest the dollars can be retained in the country is five days.

“That money then goes out of the country. Today, the US dollars stay with us for 180 days and that gives us the window to stabilise the market.” He said petroleum was used to address the macro-related-economic issues. “As the prices continue to rise going into the winter we must also ask ourselves, what are we going to do?

"Do we have enough stablisation fund or do we renegotiate freight and premium to be able to give relief to Kenyans at the pump?” he posed.

The stablisation fund collects about Sh2 billion every month.