(Bloomberg) -- Kenya extended by one year a deal to purchase fuel on credit directly from three state-owned Gulf firms.
Saudi Aramco, Emirates National Oil Co. and Abu Dhabi National Oil Co. will continue to supply Kenya with gasoline, diesel, kerosene and jet fuel until the end of December 2024, Energy and Petroleum Regulatory Authority Director-General Daniel Kiptoo said in an interview in the capital, Nairobi, on Monday. The three companies first won tenders for the contracts in March.
Read More: Saudi Aramco, ENOC, Adnoc Win Kenya Fuel-Supply Tenders
Kenyan President William Ruto’s administration nationalized the importation of fuel this year as part of a broader strategy to ease pressure on the nation’s reserves. Under the terms of the agreement, the government is able to defer payments for six months, compared to a previous requirement in which it required $500 million a month to pay for cargoes within a week of delivery.
The extension of the deal helps Kenya avoid “a double whammy,” given that in January 2024, Kenya would be required to pay both spot prices for fuel and accumulated amounts due under the existing agreement if it hadn’t extended it, Kiptoo said. The country also has $2 billion of Eurobonds maturing next year, which will pile pressure on the domestic foreign-exchange market, he said.
The first payment under the nationalized fuel purchase deal agreed in March is due on Sept. 25, amounting to $82 million, according to Kiptoo. Payments of $405 million will be due by the end of October, he said.
“We have this money ready,” he said. “We have been buying quietly in the market.”
The East African nation has also renegotiated an agreement to pay lower freight and premiums for the cargoes starting this month, Kiptoo said. Shipping and related costs will drop to $88 per ton of diesel, from the previous $118, while gasoline will decline to $90 per ton from $97.50 earlier, he said.
The deal with the Gulf oil companies “seems to have put some brakes on the need for each of you to be calling us every day for dollars,” John Gachora, the managing director of banking group NCBA Group Plc, told officials from oil-marketing companies at a briefing in Nairobi.
Dollar purchases are now being undertaken only by letter-of-credit issuing banks, including namely KCB Group Plc, I&M Group Plc, and Diamond Trust Bank Ltd., Kiptoo said. This has “eliminated dollar spot purchases by about 100 oil-marketing companies, which previously created speculative tendencies,” he said.
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