Kenya’s Energy & Petroleum Cabinet Secretary, Davis Chirchir, on Wednesday 17th April chaired a Kenya Pipeline Compony (KPC) – Oil Marketing Companies (OMC) CEOs breakfast meeting to deliberate on the critical milestones attained. Kenya successfully launched receipt of the maiden cargoes laden with aviation fuel Jet A1 and Premium Motor Spirit under the Government to Government arrangement at the Kipevu Oil Terminals 1 & 2.
The Cabinet Secretary noted that the OTS Terms have also aligned with the Master Framework Agreements. One of the significant amendments is a provision for payment of the cost of the product for the local market in Kenya shillings as has been a desire for a long time.
The other achievement is Kenya Pipeline Company’s creative new mode of operation, which commenced on 3rd April 2023 at 1730hrs. Through the parallel pumping a stable flow rate of 1,300 m3/hr has been sustained from the previous average of 950m3/hr. This implies sufficiency in the supply of products.
The Petroleum (Importation) Regulations, 2023 or Legal Notice No. 3 of 2023 provides that the importation of Super Petrol, Diesel, and Jet A-1 into the country shall be undertaken either through the Open Tender System (OTS) or through a Government-to-Government arrangement.
The petroleum imports are paid for in United States Dollars (USD), which has of late put strain on the country’s foreign exchange reserves. This has caused a deficiency in USD liquidity resulting in the rapid depreciation of the Kenya Shilling (KES).
The monthly imports of the three petroleum products are approximately seven hundred and forty thousand (740,000) Metric Tons of which 60% is for local consumption while 40% is for the transit market.
The KES-USD exchange rate is a critical variable in the determination of petroleum pump prices and any KES depreciation is directly transferred to the end consumer in form of increased retail prices.
In an effort to ease the aforementioned pressure, the Government has entered into an MoU with prospective Governments and signed Master Framework Agreements with the respective petroleum trading entities for the supply of Petroleum Products in 270 days.
Through the arrangement, the Country is set to realize greater macroeconomic benefits such as;
i. Accumulation of additional foreign reserves of approximately US$ 3 billion in the next six (6) months as demand for foreign exchange eases from the oil sector.
ii. Sustained build-up of foreign exchange reserves arising from the deferred payments for fuel imports for six (6) months which will significantly improve the country’s foreign reserve levels.
iii. Reduction in speculative tendencies in the foreign exchange market which has in the past exacerbated exchange rate volatility and caused sharp depreciation of the Kenya shilling.
iv. Exchange rate stability which will support economic recovery and slow growth of public debt to GDP over the medium term while supporting efforts towards fiscal consolidation and ultimately economic growth.
v. Floating exchange rate regime supported by higher levels of foreign reserves which will act as an effective shock absorber to external economic shocks that will further reinforce investor confidence, sovereign credit rating for Kenya, and lower yields for the Eurobonds.
