Starting next month, Kenya will import fuel from the United Arab Emirates (UAE) on a credit basis of up to one year.
The deal will allow Kenya to import 30% of its monthly fuel requirements through the State-owned National Oil Corporation (NOCK) using credit for between six months and a year.
The move is expected to ease pressure on the dollar demand in Kenya, given that oil shipments account for 28% of the country’s monthly imports. The deal is government-to-government and is expected to help Kenya avoid a crisis in the foreign exchange market.
“We will only know for sure (the effect on pump prices) once the bids are opened and evaluated,” Daniel Kiptoo, the director-general of the Energy and Petroleum Regulatory Authority (Epra), told the Business Daily on Wednesday.
While the deal is aimed at propping up the shilling against the dollar, state officials have been guarded on the effect the shipment will have on fuel prices in Kenya. They expressed concerns that the longer credit line could wipe out the benefits of buying diesel and petrol in large quantities, and they also warned that the longer credit period could increase prices.
However, officials from the Energy and Petroleum Regulatory Authority (EPRA) suggest that Kenya could benefit from discounts due to purchasing fuel in bulk. Presently, oil dealers buy petrol and diesel from scores of refineries, denying the country the benefits of economies of scale.
Also Read: Kenya to Import Duty-Free Sugar to Curb High Cost of Living
The importation of fuel on credit is expected to mainly aim at stabilising the shilling against the dollar, which hit a new all-time low against the greenback on Wednesday. Firms in Kenya have struggled to access dollars, with manufacturers raising the alarm over the scarcity of the US currency. However, the Central Bank of Kenya (CBK) governor, Patrick Njoroge, has always insisted that Kenya has sufficient foreign currency to meet demand, brushing off concerns about a shortage of dollars that may create “a parallel shadow market”.
Abu Dhabi National Oil Company (ADNOC), the State-owned oil company of the UAE, will supply the fuel to Kenya. ADNOC is among the world’s largest oil companies, with a production capacity of four million barrels per day last year and plans to increase this to five million barrels per day by 2027.
Nock was formed to stabilise and influence fuel prices in Kenya, but it has largely been forced to follow the dictates of the market controlled by private players. The government opened the importation market to private firms in the 1990s, and Nock lost its rights to import 30% of the country’s petroleum products, including LPG. With the UAE import deal, Nock will ship in 30% of Kenya’s super petrol, diesel and kerosene, and the imports will also be used to provide strategic stocks for the country and alleviate the shortage of the commodities due to disruptions globally.
The UAE import deal will boost Nock’s cash flows in an industry where it has struggled to keep pace with multinationals. Currently, the Ministry of Petroleum and EPRA oversee the importation of petroleum products through the Open Tender System, where the lowest bidder is awarded a contract to import on behalf of the other oil marketing companies.
Vivo Energy, a retailer of Shell-branded fuel products, dominates the market with a share of 23.8%, followed by TotalEnergies at 17%, and Rubis at 10.02%. Nock is ranked 10th with a 2.2% market share.