After acknowledging that the agreement was causing distortions in the foreign exchange market, President William Ruto’s administration decided to end the government-to-government oil deal with a few Saudi Arabian companies in December of this year.
The latest report by the International Monetary Fund (IMF) on Kenya’s plan to revive the economy included documents that signaled the end of the deal, which was hailed as one of Ruto’s fiscal policies.
Treasury reportedly claimed that the controversial G2G agreement had failed because it was unable to stabilize the exchange rate in a way that would have favored the Kenyan currency.
The G2G agreement was first presented in April 2023 and was mediated by Saudi Aramco, Emirate’s National Oil Company (NOC), Abu Dhabi National Oil Corporation Global Trading (ADNOC), and Kenya’s Ministry of Energy.
“The government intends to exit the oil import arrangement, as we are aware of the distortions it has created in the foreign exchange (FX) market, the accompanying increase in rollover risk of the private sector financing facilities supporting it and remain committed to the private market solutions in the energy market,” the report read in part.
“We commit that all FX (foreign exchange) conversions done as part of the oil scheme will be done at market rates.”
The G2G deal replaced the open tendering system that allowed oil marketers to be paid upon five days of delivery. This created unnecessary pressure on the foreign exchange market.
In turn, the Saudi oil deal provided a six-month credit for oil imports. According to the Treasury, the average monthly import volumes failed to attain 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 Treasury explained.
“The initial agreement was extended for another twelve months to December 2024 with more favourable costing terms.”
The government’s move to exit the deal comes after months of President Ruto defending the deal amid criticism over graft claims.