- KCB Bank, Standard Bank, others to issue letters of credit
- Government plans to defer fuel payments by at least six months
According to Bloomberg article published on March 7, 2023, Kenya has sought a $4.8 billion credit facility from a group of banks as it nationalizes the importing of fuel to enable it to defer payments and conserve its depleting foreign-exchange reserves.
The East African nation’s government plans to directly purchase fuel, taking over from private companies, according to documents seen by Bloomberg and verified by the Energy Ministry. Lenders including KCB Bank, Standard Bank Group, Standard Chartered Bank, Abu Dhabi Commercial Bank and Deustche Bank will issue or confirm guarantees for payment that the government wants deferred for at least six months, according to the documents.
The policy shift is designed to help ease pressure on Kenya’s foreign-exchange reserves, which have plunged to $6.6 billion. That’s the lowest in almost 11 years and equivalent to 3.69 months of import cover. Other African nations are also trying new methods to preserve dollars, with Ghana considering bartering gold for oil and Nigeria rationing its foreign exchange.
Elevated oil prices have worsened Kenya’s predicament, with Brent crude averaging nearly $100 a barrel over the past 12 months. Kenya’s shilling has been falling to successive new lows this year, and is down over 11% in the past 12 months, according to data compiled by Bloomberg.
President William Ruto’s administration is departing from the current fuel-purchase system, in which the Energy Ministry only supervises a monthly open tender, and the winner imports on behalf of the entire industry. The new model restricts bidders to government-owned entities, effectively locking out private companies such as past tender winners OryxEnergies and Vivo Energy.
Dollar Demand
The dollar demand for fuel, which Energy Secretary Davis Chirchir said amounts to about $500 million a month and is payable within three days of delivery, has piled pressure on Kenya’s foreign-exchange reserves. Petroleum consumption stands at an estimated 950,000 metric tons per month, about half of which is diesel.
The winning bidders under the government-to-government purchase plan will be granted exclusive rights to supply petroleum products to Kenya and some landlocked countries. The gasoline, diesel, kerosene and jet-fuel contracts will run for nine months and will be based on pricing data from Platts, a unit of S&P Global Inc., according to the ministry.
Shipments under the new system may begin in the April-May supply round, Chirchir said last week.
The lenders agreed to issue letters of credit for Kenya to an upper limit of $4.8 billion, said Mohamed Liban, principal secretary at Kenya’s state department for petroleum. The guarantee for payment will be through letters from an investment-grade-rated international bank acceptable to the bidder, according to the documents.
