- Government-to-government agreement was expected to strengthen the shilling by easing monthly scramble for dollars by oil marketers.
- In Kenya, government-to-government is not regulated under the procurement law
As the value of the shilling took a nose dive, Kenya Kwanza announced it was adopting government-to-government procurement of petroleum products to arrest the trend.
President William Ruto's government opted for government-to-government oil supply contracts in March this year after the shilling tumbled to record lows.
The government announced that it would start importing diesel, super petrol and jet fuel on credit in a deal meant to ease demand for the dollar and prop up the shilling.
It was estimated that oil companies needed US$500 million to pay for fuel imports every month, with the sector accounting for 28 per cent of the import deal.
Kenya Kwanza argued that adopting G2G would significantly ease the pressure on the dollar, allowing other traders and importers to access the currency for their bills.
"By doing that we alleviate the pressure by removing a third of the demand for dollars in the market," Daniel Kiptoo, the director general of the Energy and Petroleum Regulatory Authority stated at the time.
Appearing before the National Assembly’s Energy Committee on Friday, Energy CS David Chirchir said G2G is paying off.
“Government-to-government is working well. It was not meant to address the price of petroleum products but the decline of the shilling against the dollar. Depreciation has significantly gone down,” he maintained.
The G2G agreement was expected to immediately strengthen the shilling by easing the monthly scramble for dollars by oil marketers.
Members of the Energy Committee wondered why the Kenyan currency has continued to weaken instead, exchanging at an average of 145 units to the dollar compared to about 130 units when the deal was signed in March
Government-to-government procurement is a method of procurement that occurs where a bilateral or multilateral agreement is entered into between the Government of Kenya and a foreign government, agency, entity, or multilateral agency.
Usually, such an agreement would be a financing agreement such as a concessional loan or grant with respect to a project or supply of goods and services.
The G2G procurement method is not unique to Kenya. Early this year, it was reported that Britain and Iraq had entered into an arrangement wherein Britain would advance 10 billion pounds in loans to finance infrastructure projects in Iraq over a 10-year period.
One of the conditions of the loan was that it would only benefit British companies.
In Kenya however, G2G is not regulated under the procurement law and raises queries in relation to its compliance with the Constitution of Kenya.
The Constitution of Kenya in Article 227 requires that a public procurement system ought to be fair, equitable, transparent, competitive, and cost-effective.
The Standard Gauge Railway marked the introduction of G2G procurement in the country.
The project was financed through concessional loans and grants from a foreign government.
Terms and conditions imposed by such concessional loans and grants were therefore not subject to the procurement law.
The project sparked controversy and the Law Society of Kenya filed a case in the Kenyan High Court challenging the procurement method used for the SGR.
LSK cited lack of competition as one of the grounds for the challenge.
The construction of the SGR was funded through a concessional loan from the Exim Bank of China, which required that the engineering, procurement and construction contract be awarded to a specific state-owned Chinese corporation.
The court however ruled that the procurement was proper, recognising government-to-government procurements arising from negotiated grants or loans as being exempt from the application of the procurement law.