Ministry Of Energy Compares Tanzania's Oil Importation Deal With Kenya's, Defends G-to-G Arrangement

• The Ministry of Energy defended the government-to-government (G-to-G) oil deal amid reports that it has cost taxpayers over KSh 16 billion more than the previous open tender system
• The Ministry explained that despite the higher costs, the G-to-G deal aims to address USD liquidity challenges and stabilising the exchange rate
• The Ministry highlighted that Kenya's G-to-G deal features the lowest freight and premium costs in the region and the longest credit period of 180 days, compared to Tanzania's 60 days

Elijah Ntongai, a journalist at TUKO.co.ke, has more than three years of financial, business, and technology research expertise, providing insights into Kenyan and global trends.

The Ministry of Energy has defended the government-to-government (G-to-G) deal following reports that it has cost taxpayers over KSh 16 billion more than the open tender system that was replaced.

On March 10, 2023, the Government of Kenya signed Master Framework Agreements for the supply of petroleum products under a G-to-G arrangement with extended credit terms of 180 days.

Why Kenya adopted G-to-G arrangement

The Ministry of Energy, through the State Department for Petroleum, explained that although the G-to-G deal costs more because of the extended credit window of 180 days, it has met its main objectives.

The ministry emphasised that the deal was designed to address USD liquidity challenges by accumulating $500 million (about KSh 64.5 billion) in foreign reserves monthly, reviving the interbank market to curb speculative activities, and ensuring foreign exchange rate stability to support economic recovery, reduce public debt growth, and promote fiscal consolidation.

"The G-to-G program has provided immense benefits to the country's economy in particular with regard to the USD liquidity and appreciation of the Kenya Shilling against the USD. It is worth noting that at the time the G-to-G arrangement was implemented, the country was grappling with serious USD liquidity issues which had in turn negatively affected the value of the Kenya Shilling against the USD

At the time, the Federal Reserve rate was at its highest in 22 years leading to capital flight from frontier markets which included Kenya. It had been forecasted that the Kenya shilling would reach a low of KSh 190 to 200 per USD if status quo was maintained," the ministry explained in a press release.

Comparison to Tanzania

The Ministry noted that despite the higher costs incurred under the G-to-G deal, Kenya still boasts the lowest freight and premium costs and the longest credit period of 180.

"The F&Ps (freight and premiums) under the G-to-G arrangement are by far the most competitive in the region, further noting that Kenya has the longest credit period (180 days) compared to Tanzania, for example, with a credit period of 60 days," the Ministry said.

Kenya to exit G-to-G oil importation deal

Recently, TUKO.co.ke reported that the National Treasury disclosed that the G-to-G oil import deal with three international oil companies did not meet its goals.

In a report to the International Monetary Fund (IMF) on Wednesday, January 17, former Treasury Cabinet secretary Njuguna Ndung'u admitted the deal created distortions, coupled with an increase in rollover risk of private sector finance.

Ndung'u highlighted related challenges, including failure to meet minimum oil import volumes as agreed with the three Gulf oil companies (Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company).

Proofreading by Asher Omondi, current affairs journalist and copy editor at TUKO.co.ke.