Oil marketers defend fuel import deal as shilling continues to dip

Ann Njeri Njoroge, the businesswoman at the center of the controversial Sh17 billion oil import. [Kelvin Karani, Standard]

The oil companies contracted to import fuel under Kenya’s deal with Gulf countries have dismissed claims that the agreement is costing taxpayers billions of shillings in corrupt dealings and has failed to achieve its objective.

In a joint statement published yesterday in local dailies, the three oil marketing companies (OMCs) - Gulf Energy, Galana Energies and Oryx Energies - defended the government’s  position that the deal with Saudi Arabia and United Arab Emirates was above board, despite claims by the Opposition that the deal was only benefiting a few individuals in the government through high fuel prices, to the detriment of Kenyan consumers.

On Wednesday, Azimio leader Raila Odinga in a press conference claimed that Kenya did not sign an oil import agreement with the governments of the two Gulf countries, and that the deal was only between the Ministry of Energy and international oil companies (IOCs) in the Middle East.

“This is not true,” said the OMCs in the statement yesterday. “There is an MoU between the Government of Kenya and the governments of the IOCs, also supported by long existing bilateral trade relations between Kenya and these two countries.”

The companies justified the signing of the import deal in March this year, saying most emerging economies had started to experience challenges obtaining adequate supply of dollars when the US Federal Reserve began raising interest rates on its Treasury bills in 2021, with resulting delays in payment for fuel products by oil marketing companies.

“Given the requirement for prompt payment for fuel in dollars, a situation emerged where all the OMCs were chasing very scarce dollars, creating a speculative bubble in the forex markets,” they said.

The shilling has depreciated steeply against the dollar from an average 129 to the dollar in March 2023 to about 152 currently, lending force to claims that the oil deal that was meant to cushion the local currency has failed.

President William Ruto, while revealing the government-to-government deal in March said the shilling would recover to exchange at around 120 to the dollar.

He said the agreement would see Kenyans access fuel on six-month credit and that the move could ease demand for about $500 million every month from the market.

“Therefore, for the people who work numbers, I am giving you free advice, that those of you who are holding dollars soon you might go into losses,” the president said.

However, six months later, the shilling continues to lose value against the dollar, and the fuel cost per litre has risen to over Sh200 from Sh162 per litre of diesel and Sh145 for kerosene in March.

But the oil companies defended the shilling’s depreciation, saying it would have been worse were it not for the intervention of the oil import deal.

“This depreciation would have been worse were it not for the intervention of G-to-G. It is a fact that during the period of scarcity of forex prior to the G-to-G implementation, there existed a parallel market that was selling dollars at rates, much higher than the rate published by the Central Bank.”

They said the depreciation of the local currency is a result of “macro-economic factors not specific to the oil sector including the global strengthening of the dollar as the Federal Reserve Bank of the United States of America raising interest rates; this is not a purely Kenyan phenomenon.”

On rising cost of fuel even after the deal, they said the cost is largely determined by international oil prices and prevailing exchange rates both of which have been on an upward trend “long before the inception of G-to-G”.

They also defended the government on claims by Mr Odinga that the government nominated the three firms to handle logistics, saying that nomination was an exclusive prerogative of the IOCs and was purely based on performance in delivering fuel into the country under the previous Open Tender System (OTS).

Invited for bids

In a statement to newsrooms on Wednesday, Energy and Petroleum Cabinet Secretary Davis Chirchir said the government put out a tender on March 1, 2023, where government-owned IOCs were invited to bid for the supply of petroleum products on 180-day deferred payment terms and a contract period of 270 days.

“The tender closed on March 6, 2023, where bids were received from Emirates National Oil Company, Abu Dhabi National Oil Company, Saudi Aramco, Petrosa & Trafigura, Vitol Bahrain, OQ Trading and State Owned Company of the Republic of Azerbaijan,” said Chirchir.

“The government thereafter embarked in direct negotiations with the state-owned bidders and their respective governments. This culminated into the signing of Memoranda of Understanding with the Kingdom of Saudi Arabia and the United Arab Emirates in March 2023.”

On 10 March 2023, he said, the government through the ministry entered into master framework agreements with Aramco Trading Fujairah FZE, Abu Dhabi National Oil Company Global Trading Ltd and Emirates National Oil Company (Singapore) Private Ltd, and this marked the beginning of the supply of petroleum products under a G-to-G arrangement on extended credit terms of 180 days.

The CS said the entire process underwent thorough scrutiny and approval by the National Treasury and the Office of the Attorney General.

He said documents with respect to the transaction were made public and available for scrutiny.

“Documents have also been availed to both Houses of Parliament through their respective Standing Committees of Energy which interrogated and satisfied themselves that the arrangement was above board, the transaction has also been subject to several court cases where the documents have been provided promptly and are part of the record,” Mr Chirchir said.

The OMCs yesterday also dismissed claims by Odinga that after being “hand-picked” they are selling oil to Kenya at almost twice the price from bulk suppliers.

“This is not correct. There was no ‘handpicking’ by the government. Further, the fuel is not being sold at ‘almost twice’ the price from the bulk suppliers.

“The nominated OMCs are not allowed and do not add any markup on the contractual freight and premium in the master framework agreement,” said the OMCs.

They said claims that Kenya is losing billions of shillings in taxes because the firms do not pay 30 per cent corporate tax is not true.

“This is entirely untrue, inflammatory, purposely misleading and is geared to paint the three companies in bad light,” the statement said.

“None of the three companies has been exempted from corporate taxes and they are all tax compliant.”