Treasury Cabinet Secretary Prof Njuguna Ndungu on Friday, January 19, dispelled reports stating that Kenya was pushing to exit the government-to-government (G-to-G) oil importation arrangement after failing to hit its target.
In a statement, CS Ndungu termed media reports stating so as “deliberate misrepresentation” and emphasized that the government would hold on to the deal.
“We condemn in the strongest possible terms the misreporting and express our profound concern over the deliberate misinterpretation of the text within the International Monetary Fund (IMF) report,” CS Ndungu said in a statement.
The media, both mainstream and social media, was on Friday awash with reports stating that the government had admitted failure of the g-to-g touted as Kenya’s savior in light of various economic challenges and was looking for an exit route.
But CS Ndung’u refuted claims that the government had admitted failure of the oil importation arrangement.
Instead, he affirmed that the current arrangement would remain in place until the obligations under the signed contracts are met.
According to CS Ndung’u, the media misinterpreted a clause in an IMF report that specifically addressed the anticipated increase in rollover risk associated with private sector financing facilities supporting the arrangement.
In his statement, the CS said Kenya’s eventual exit from the deal has always been part of the deal, noting that the ultimate goal was to allow private sector players to assume a more prominent role in the oil business.
As such, Ndung’u asserted that Kenya’s exit should not be taken as a “notable development “as it aligns with the pre-established timeline and objectives of the initiative”.
CS Ndung’u defends G-to-G deal
In defending the arrangement, Ndung’u went on to break down its impact on the economy amid concerns of the depreciating value of the Kenyan Shilling.
He reiterated that importation of petroleum through the G to G arrangement was one of the key measures that the Government of Kenya initiated to avoid an economic shutdown due to supply constraints that existed then and in particular US Dollar liquidity problems.
At the inception of the deal, he explained, the monthly demand for US Dollars by the petroleum sector was about Ksh 500 million per month.
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This, according to him, strained Kenya’s forex reserves and threatened the security of supply of petroleum and other critical sectors such as food and agriculture that also heavily rely on imports.
The dollar shortage, he adds, was further compounded by the dysfunctional state of the inter-bank forex market.
What Kenya averted through g-to-g deal
As per the statement, lack of such an arrangement would have sunk the country’s economy.
He went on to mention that none of the 136 Oil Marketing Companies in Kenya had gone to the market to source for US Dollars which would have exacerbated the dollar crisis.
“The G-to-G arrangement came in to stabilize the macroeconomic environment by providing an extended credit period for petroleum imports i.e. 180 days compared to the initial 30 days and this freed about 30% of the country’s forex to other sectors of the economy,” CS Ndung’u added.
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“As a result, the depreciation of the Kenya Shilling slowed down as demand for US Dollars declined gradually.”
Further in his defense, Ndung’u said that the G-to-G arrangement ensured a continuous supply of oil in the country and hence avoiding a stock out.
Govt deals with critics of oil deal
His statement came amid widespread reactions from Kenyans to the news of the imminent exit from the g-to-g deal.
The government announced the deal in early 2023 in what was touted as a gamechanger and a breakthrough in managing the depreciation of the Kenyan Shilling.
But the arrangement has frequently encountered challenges and criticism from various quarters, among them the opposition which had raised concerns about possible shady dealings.
Uganda has also raised its concerns, attributing the rise in the cost of petroleum in the region to the deal.
