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Government Deal to Import Fuel on Credit in Motion

Benson Muriithi by Benson Muriithi
April 20, 2023
in News
Reading Time: 2 mins read
Fuel Shortage Kenya

Photo/Courtesy

Kenya has started receiving oil imports under a new State-backed system designed to alleviate pressure against the dollar, which has worsened the country’s economy for over a year. The deal with three international oil companies is expected to ease the dollar shortage, and the government has requested Kenyans to offload their US dollars to the market to increase demand for the shilling.

The importation deal will enable the country to purchase USD500m of fuel every month, which will reduce the demand for the dollar, making the shilling stronger.

Three oil firms, Saudi Arabia Oil Company, Abu Dhabi National Oil Company, and Emirates National Oil Company, will supply petroleum products on credit for nine months, with an extended credit period of six months. However, fuel prices will not be lowered, and oil marketers have raised concerns about the cost that will come with the extended credit period.

Also Read: Kenyans to have Stable Supply of Oil after the New Import Deal

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The Kenyan government admits that the new system may not directly affect lowering pump prices, but it maintains that it will stabilize the shilling, whose volatility has triggered a cost-of-living crisis in the import-dependent economy.

During the credit period, oil marketers will pay for products using the shilling instead of the dollar, reducing the pressure on foreign exchange reserves.

The new deal is expected to reduce the demand for dollars, which is driven by petroleum imports by extending the time required to source for dollars from five days to 180 days. The local oil industry requires USD500m every month to buy approximately 740,000 metric tonnes of fuel.

According to State officials, shifting the dollar settlement to oil-importing companies makes it easier to plan for the purchase of dollars in a manner that does not destabilize the market.

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