G-to-G refers to Government to Government. When President William Ruto took charge of the country in September 2022, his administration negotiated a Government-to-Government oil plan with the Gulf countries.
The procurement method saw Kenya enter a bilateral agreement with oil-producing countries in the Gulf for the supply of oil on credit to help stabilise fuel prices in the country.
The deal enables Kenya to procure fuel using local currency and eliminates the need to source for dollars.
In the arrangement, the country, through appointed local oil marketers, receives fuel on credit terms for up to six months from Emirates National Oil, Abu Dhabi National Oil, and Saudi Aramco.
Once the appointed oil marketer receives the fuel, it sells to its peers in shillings before being supplied to retailers.
The shillings paid by local oil marketers are kept in escrow accounts managed by three local banks led by Kenya Commercial Bank, which takes 180 days to collect enough dollars to pay suppliers in the Gulf.
While this was expected to stabilise fuel prices, as well as the economy in some way, it has now emerged that it has not been as expected.
The National Treasury now says the deal will be allowed to come to an end, as it has a high risk facing private sector financiers of the facilities.
“The temporary oil import arrangement will be allowed to lapse, as we are cognizant of 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 IMF report reads in part.
It further says, “We commit that the exchange rate that will be used for purchasing FX under the scheme, and the rate at which the government will provide access to US$ should the need arise, would not deviate from the prevailing market rate by more than 2 percent. We will also amend regulations on the fuel pricing formula to specify pass-through of the exchange rate risk component and any other risks that may materialize.”
Following the announcement, here’s how a section of Kenyans reacted;
