Kenya to exit G2G oil deal, admits failure to fix unstable shilling-dollar rate

The G2G deal which was launched by President William Ruto in April 2023, was billed as the solution to stabilising the shilling against the dollar.

The deal agreed between Kenya and three national oil exporters from the Gulf, provides for six-month credit for oil imports, backed by letters of credit issued by participating commercial banks.

"The government intends to exit the oil import arrangement, as we are cognizant of the distortions it has created in the FX market, the accompanying increase in rollover risk of the private sector financing facilities supporting it and remain committed to private market solutions in the energy market," the Treasury is quoted in an IMF report published Wednesday.

The government admits that the deal was a short-term measure to help ease foreign exchange pressures.

"As an interim measure to help ease FX pressures, we introduced a new oil import arrangement in April 2023. It replaced the previous open tendering system, under which oil import dues were payable upon five days of delivery, often creating undue FX market pressures," the government says.

Kenya admits that the deal soured immediately saying that there was low demand which saw the import volumes dip.

"In the first 6 months, the actual average monthly import volumes fell short of the monthly minimums agreed under the arrangement. This was due to lower demand from our domestic market as well as from the regional reexports markets," the government said.

A bullish Ruto in April, said that the deal was going to bring the exchange rate down.

"In the next one month or so, you will see the exchange rate coming down in a very phenomenal way, it will come down to below Ksh.120..." he said on April 11, 2023.

Opposition chief Raila Odinga was the first to poke holes in the G2G deal going as far as calling it a scam and was going to drive up the cost of fuel to benefit a few government officials.

"When Ruto initiated this deal, the US-dollar to Kenya-shilling exchange rate was Ksh.132. Today, six months later, it is Ksh.159 to the dollar," he added.

"The cost of fuel shot up significantly after the deal. Why have things moved from bad to worse since the deal?"

The opposition leader also questioned how Gulf Energy, Galana Oil Kenya Ltd, and Oryx Energies Kenya Limited were chosen to handle local logistics, accusing the "handpicked distributors" of selling oil at nearly twice the price of bulk suppliers.

But President Ruto scoffed at him saying the deal was transparently done.

"The purpose of the government is twofold; to guarantee international oil companies that they can extend products to Kenya for six months and that after six months we are going to pay and we have kept our part of the bargain," he said.