Cabinet Secretary for National Treasury and Planning Prof. Njuguna Ndungu, has termed the government-to-government (G-G) framework on the importation of petroleum products as an innovative solution that would ensure stability and predict pump prices.
CS Njuguna said the G-G framework is budget neutral, and the government would not interfere with the retail market.
Through the framework, the CS revealed they are negotiating for better prices, and the Oil Marketing Companies (OMC) would not profiteer from the G-G arrangement.
“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 pump pricing. G-G is not based on pushing for profit margins,” said CS Njuguna when he witnessed the offloading of two ships laden with petroleum products at the New Kipevu Oil Terminal.
CS Njuguna said the government entered into the G-G framework to eliminate the short-term volatility of the nominal exchange rates driven by the global scarcity of dollars.
The G-G, he added, 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.
“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 expect 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 said the G-G is working and the Kenya shilling is progressively gaining strength.
Under the G-G arrangement, the OMC will obtain products on credit and pay after 180 days.
CS Chirchir said the arrangement has been working since the first consignment of ships was received in April and would, in the long run, stabilize the economy.
Chirchir said the products would be paid for using Kenya shillings, thus easing pressure on the dollar.
The Trade and Development Bank, the lead bank, and other local banks will raise funds to finance the importation of petroleum products.