KRA collected an estimated Sh164.03 billion in fuel taxes between last July and December. PHOTO | SHUTTERSTOCK


How Gulf firm baited Kenya into extending G-to-G fuel deal

One of the three Gulf oil majors at the centre of the government-to-government fuel import deal has revealed how it pushed Kenya to extend the arrangement by one year as a condition for renegotiating prices, underlining the firms' power of leverage in the multi-billion shilling scheme.

A report published ahead of the climate-focused Conference of the Parties (COP28) that started on Thursday in the United Arab Emirates (UAE) shows that Abu Dhabi National Oil Company (Adnoc) gave the condition when Kenya requested flexible premiums to match global trends in prices of murban crude oil.

The global prices of refined fuel have been falling since September and hit $80 per barrel this week but Kenyans have missed out on the reliefs amid the locked premiums in the deal signed with three Gulf oil majors, including Adnoc.

Kenya in September extended the fuel import deal on credit by 12 months to the end of December next year but the deal came with fixed rates of premiums— margins added to the cost of petroleum products.

Adnoc, Saudi Aramco and Emirates National Oil Company (Enoc) have since April this year been supplying Kenya with fuel within a 180-day credit period. The deal was initially set to run for nine months from April to the end of this month.

“Kenya requested Adnoc to re-evaluate the premium since the market went down. Adnoc is open to consider amending the premium only if the Kenyans agree to extend the term contract by one more year (December 2024),” says Adnoc in the COP28 report.

“The topic (review of the premiums) was raised during the fourth session of the UAE-Kenya joint committee on July 31, 2013, with an agreement to continue negotiations after the contract term.”

Adnoc’s condition highlights the vast power that the Gulf oil firms wield in the deal that was meant to arrest the steep decline of the shilling by ending the estimated monthly demand of $500 million for spot purchases of fuel.

Prices of murban crude dipped to $80.69 per barrel on Monday compared to $94 per barrel at the end of September.

Neighbouring Tanzania last month cut pump prices in the wake of the global drop in murban crude.

In Kenya, prices of super petrol remained unchanged at Sh217.36 a litre in the monthly review to December 14 while that of diesel fell by Sh2 per to Sh203.47 per litre after the State stabilised prices.

But the deal has failed to significantly slow down the depreciation of the shilling against the dollar contrary to earlier promises by President William Ruto that the shilling would drop to as low as 120 units to the greenback.

The shilling exchanged for 152.73 units to the dollar yesterday, compared to 136 units at the end of April, the month when the first cargo of the fuel arrived.

Local pump prices are traditionally expected to mirror global trends on the murban crude prices but the deal with the three Gulf oil majors has left Kenya locked in a tight corner.

The locked clauses coupled with the faster sliding shilling against the dollar ended the slim hopes that Kenyan had of reduced pump prices under the government-to-government deal.

Adnoc picked Gulf Energy to supply diesel and jet fuel while Enoc picked the Kenyan oil marketer to import super. Saudi Aramco picked Oryx and Galana.

In July, Energy Cabinet Secretary Davis Chirchir disclosed that Kenya was close to securing a deal that would lower premiums charged on the fuel supplied by the three oil companies. He, however, did not reveal the new rates.

Top officials from the Ministry of Energy, the Treasury and the Energy and Petroleum Regulatory Authority first went to Dubai in July to push for a review of some of the clauses in the fuel import deal.

The push for a review of the clauses, including those on import volumes and letters of confirmation, started at a time when global prices of petroleum products dropped.

Kenya was to ship 250,000 to 350,000 of petrol and 330,000 to 380,000 tonnes of diesel every month. A further 80,000 tonnes of jet fuel were to be imported per month. The new volumes under the one-year contract extension remain undisclosed.

Kenya started paying for the fuel supplies in September following the expiry of the six-month credit period, in what experts warned could undo the gains made in easing demand for dollars.

The Treasury last month disclosed that the three Gulf oil majors have since pocketed Sh127.26 billion ($848,378, 738) and were in line to receive a further Sh247.43 billion ($1,649, 535,513).