Kenya has already paid $238,842,710.12 (Sh35.3 billion) to Gulf companies under the government-to-government import credit scheme meant to address the exchange rate volatility.
The National Treasury Cabinet Secretary Professor Njuguna Ndung’u noted that the first three letters of credit (LCs) issued under the arrangement had since been settled before maturity, “without distorting the forex market.”
“A Treasury and Risk Management Committee (TRIMCOM) composed of the Government, Nominated Local Oil Marketing Companies and Financing has been closely monitoring the go-to-market dates for USD conversions for various LCs to ensure timely fulfilment of all LC obligations.
The G-to-G arrangement has therefore been de-risked and more Financing Parties have joined in with others at advanced stages,” said Professor Njuguna.
The Kenya Shillings that paid for the local portion of Super Petrol and Diesel imports are credited to a separate escrow account. They are later converted into dollars as each individual letter of credit maturity date nears.
Currently, the dollar escrow account holds $1 Billion while the Kenya Shillings escrow account holds Sh115 Billion which will ensure timely and seamless payment of all maturing LCs.
The scheme, which was midwifed on March 10, 2023, by the Kenyan government in partnership with governments of the United Arab Emirates and Saudi Arabia, is aimed at easing forex pressures by eliminating the buying of fuel, the country’s single-largest import commodity, in the spot market by postponing the demand for dollars estimated at $500 million monthly.
Despite the continued depreciation of the Shilling, with the local currency trading at an average of 147.6412 against the dollar, the government insists that the G-to-G arrangement has been able to protect the economy from exchange rate volatility by eliminating the spot purchases for the greenback by about 100 oil marketing companies.
“GOK through the Ministry of Energy and Petroleum and the National Treasury will continue monitoring the implementation of the G-to-G arrangement to ensure continued security of supply of petroleum while at the same time ensuring maximum benefits to the country and the region,” added Njuguna.
To mitigate some of the foreign exchange risks, Kenya set up an interest-bearing escrow account into which the proceeds from the sale of fuel sourced through the deal are deposited.
Payment for the entire import of aviation fuel and the Super Petrol and Diesel imports on transit to the neighbouring countries is made in dollars, with the amounts being credited to an escrow account.