National Treasury Cabinet Secretary (CS) Njuguna Ndungu has clarified that the government-to-government (G-G) fuel purchase program will stabilize pump prices in the country. He stated on the G-G framework is budget neutral and that the state won’t interfere with the retail market.
“There is an economy of scale we are supplying for the next six months so there is supply certainty. We are going to gain that through the pump pricing. G-G is not based on pushing for profit margins,” said CS Njuguna.
The CS said through the framework negotiations are underway for better prices, the Oil Marketing Companies (OMC) would not profit from the G-G arrangement, as he witnessed the offloading of two ships laden with petroleum products at the New Kipevu Oil Terminal.
CS Njuguna said the government entered the G-G framework to eliminate the short-term volatility of the nominal exchange rates driven by the global scarcity of dollars as the G-G gives the government room to restart the interbank forex market.
The long-term supply of fuel through the framework the CS elucidated will ensure stability and predictive capacity on where the pricing is going, and those using fuel as an input would not suffer. The Trade and Development Bank, the lead bank, and other local banks will raise funds to finance the importation of petroleum products.
“It gives us a chance in the long term to try and restructure the oil market and especially the pricing structure. Every 14th day of the month people are expecting pricing revisions. We don’t want that coordination of expectations of price revision we want to make sure we move away from that but we can only move away if we have a long-term supply structure,” he said.
Energy CS Davis Chirchir also pointed out that the G-G is working and bit by bit the Kenya shilling is progressively gaining strength. It’s important to note that under the G-G arrangement, the OMC will obtain products on credit and pay after 180 days.
According to CS Chirchir, this arrangement has been working since the first consignment of ships was received in April and would, in the long run, stabilize the economy. As he revealed that these products would be paid for using Kenya shillings, thus easing pressure on the dollar.