Gov't Defends G-to-G Fuel Deal Amid Growing Scrutiny

The Ministry of Energy and Petroleum has defended Kenya's Government-to-Government (G-to-G) arrangement for the importation of refined petroleum products amid growing scrutiny of the deal.

In a statement in Sunday, September 20, the ministry said the arrangement was introduced to address severe foreign exchange shortages that had threatened the country’s ability to import fuel and other essential commodities after the current administration assumed office in September 2022.

"Our attention has been drawn to media reports in the last 2 days on the Government-to-Government importation of refined petroleum products commonly known as the G-to-G arrangement, which is a well-intentioned arrangement for the country," the statement read.

The ministry said the arrangement was conceived against the backdrop of a serious fuel supply challenge, with retail stations operating on minimal or no stocks when President William Ruto’s administration assumed office on September 13, 2022.

At the time, petroleum importers were required to settle payments for refined products in US Dollars within five days of receiving cargo, placing additional pressure on the country’s already limited foreign exchange reserves.

"The objective of the arrangement was to cushion the country from the negative effects of US Dollar liquidity that had almost ground our economy to a halt in 2022," the statement added.

According to the ministry, the petroleum import bill was consuming a significant share of the country’s available foreign currency at the time, while Kenya was also struggling to secure dollars for other critical imports.

"The total import bill on account of refined petroleum products amounted to US Dollars 500 million, being about 35% of the total import bill. Like many frontier countries, Kenya experienced acute scarcity of US Dollars complicating supply of refined petroleum products among other critical imports such as pharmaceuticals and fertilizers," the statement further read.

The ministry said oil marketing companies were subsequently forced to source dollars from multiple banks, creating additional demand for the currency and contributing to rapid movements in the Kenya Shilling-US Dollar exchange rate.

It added that the companies were also compelled to take expensive foreign exchange swaps to meet their petroleum import obligations, but the arrangements became increasingly unsustainable because of the shortage of US Dollars.

"A meeting of the leadership with banks and OMCs laid bare the situation bringing the realization that the country was at a tipping point. An urgent solution had to be sought to avoid economic collapse, which was a matter of when," the statement noted.

On March 10, 2023, the Government of Kenya entered into Master Framework Agreements with Aramco Trading Fujairah FZE, Abu Dhabi National Oil Company Global Trading Ltd and Emirates National Oil Company (Singapore) Private Limited.

The three companies, collectively referred to as International Oil Companies (IOCs), were contracted to supply refined petroleum products under the G-to-G arrangement on extended credit terms of 180 days.

The ministry said the extended payment period was intended to reduce immediate demand for US Dollars while allowing Kenya to build its foreign exchange reserves.

"The main objective of the G-to-G arrangement was to alleviate US Dollar liquidity challenges by ensuring accumulation of additional foreign reserves to the tune of US Dollars 500 million per month as the US Dollar demand eased due to the extended credit terms.

"The G-to-G arrangement was also aimed at reviving the interbank market and reducing speculative tendencies in the foreign exchange market which had exacerbated foreign exchange volatility," the statement read.

The ministry also explained why the international oil companies appointed local oil marketing companies to handle logistics instead of directly establishing subsidiaries in Kenya.

"As in any other trading arrangement and in line with the licensing regime for the country, the IOCs were required to open subsidiaries if they were to handle the entire integrated supply from importation to local logistics. The other option was for the IOCs to appoint licensed counterparties in Kenya for local logistics. The IOCs opted to appoint counterparties," the statement added.

According to the ministry, the international suppliers initially selected Gulf Energy Limited, Galana Energies Limited and Oryx Energies Kenya Limited after being provided with a list of licensed oil marketing companies for vetting.

The government said it had deliberately avoided dictating which companies should be selected because doing so could have jeopardised the entire arrangement at a time when Kenya was facing an acute fuel supply risk.

As the programme progressed and the transactions became less risky, additional counterparties were nominated, namely One Petroleum Limited, Asharami Synergy Limited and BE Energy Limited.

The ministry also addressed concerns surrounding the premiums charged under the arrangement, saying the initial rates reflected international market conditions when the G-to-G deal was launched.

"At the time the G-to-G arrangement commenced, prices in the international market for refined petroleum were high based on the prevailing geopolitical and market conditions then. The final negotiated Freight and Premium for the supply of Super Petrol was US Dollar 97.50 per metric ton that of Diesel was US Dollar 118 per metric ton while that of Jet A1 was US Dollar 114.25 per metric ton," the statement explained.

The government said the premiums were subsequently renegotiated as international market conditions improved.

In September 2023, the premium for Super Petrol was reduced to US Dollar 90 per metric ton, while Diesel settled at US Dollar 88 per metric ton and Jet A1 at US Dollar 111.75 per metric ton.

A further renegotiation in March 2025 resulted in Super Petrol being set at US Dollar 84 per metric ton, Diesel at US Dollar 78 per metric ton and Jet A1 at US Dollar 97 per metric ton.

The ministry said the premiums have remained fixed even during the Middle East crisis, when spot market offers reportedly reached as high as US Dollar 400 per metric ton.

It also attributed the continued security of petroleum supplies to the global standing and geographic proximity of the international companies supplying Kenya.

The government said the G-to-G model has also changed how petroleum imports are paid for in the local market, with payments being made in Kenya Shillings and backed by 180-day Letters of Credit.

"The G-to-G arrangement underpins the payment for refined petroleum products for the local market in Kenya Shillings backed by a 180-day Letter of Credit. As a result, the country's forex reserves have been preserved and significantly built, stabilizing the US Dollar-Kenya Shilling exchange rate for the longest. The Letter of Credit issuing banks have grown from KCB Bank to MCB, I&M Bank, DTB, Stanbic, UBA and Equity Bank," the statement further read.

The ministry further said the arrangement had gained recognition beyond Kenya and was contributing to the country’s ambitions of becoming a regional petroleum logistics hub.

"The G-to-G arrangement has therefore not only been a testimony of local solutions to local problems but has received wide recognition and adoption regionally cementing Kenya as a regional logistics hub. 

"We have and will continue working closely and support all our trading partners in the region to make the Northern corridor the route of choice for supply of refined petroleum to East Africa and the greater Lakes region," the statement concluded.