The government is set to take a step back from the fuel credit scheme deal with three gulf oil companies.
This is after the International Monetary Fund (IMF) expressed concerns that taxpayers might be exposed to currency-related costs.
Treasury Cabinet Secretary Njuguna Ndung’u noted that the state would take a step back and allow players in the private sector including oil marketing companies (OMCs), banks, and credit insurance providers, to run the scheme.
The CS revealed that the government had explained to the IMF staff who visited the country for reviews of credit and funding facilities that the scheme was a trade finance arrangement which had no risks to the Kenyan government.
“There is no end game to this (review) because what we will do is that the government will step back and allow the market to work on its own, with those deferred LCs (letters of credit),” Prof Ndungú said.
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He further highlighted that the government has not been an active participant in the scheme.
Moreover, when asked about the review of the credit schemes due in December 2023, CS Njuguna Ndung’u said, “We have gone into several cycles until they (IMF staff) have understood.”
Cheaper Oil Deal with Gulf Firms
The Kenya Kwanza government hatched a scheme for cheaper oil imports in collaborations with the United Arab Emirates and the government of Saudi Arabia.
Further, the plan was to ease forex pressures by inhibiting the purchase of fuel, which is the country’s single-largest import, on the spot market by delaying the demand for dollars estimated at $500 million monthly.
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Likewise, the plan directed the Treasury to issue comfort letters to exporters and local banks for fuel purchases made by specific gulf oil importers including Saudi Arabia and the United Arab Emirates.
These comfort letters guarantee that a commitment will finally be honored.
However, the Treasury has insisted that such letters of comfort cannot amount to government guarantees of private debt.
According to IMF, the government is exposed should foreign exchange (FX) fluctuate.
“After the initial rollout period, staff advised that the import scheme should be reconfigured so that all risks are borne by the private sector,” stated the IMF.
Nevertheless, Kenya is expected to make the first payment for the April consignment in mid-September.
