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Government Figures Out Formula To Bring Fuel Prices Down

Innovative oil purchasing model will ensure stability and predict pump prices

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With fuel prices rising uncontrollably, the government of Kenya has adopted a new purchasing model that promises to stabilize and, hopefully, reduce pump prices in the long run. The Cabinet Secretary for National Treasury and Planning, Prof Njuguna Ndung’u, says the government-to-government (G-G) framework being introduced on the importation of petroleum products is an innovative solution to ensure stability and predict pump prices.

Prof Njuguna said the Government-to-Government framework is budget neutral, and the government would not interfere with the retail market. Under this deal, the CS revealed Kenya is negotiating for better prices, and the oil marketing companies (OMC) would not profiteer from the G-G arrangement.

“There is an economy of scale,” Prof Ndung’u said when he witnessed offloading of two ships laden with petroleum products at the New Kipevu Oil Terminal. “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.”

Under the G-G arrangement, the OMC will obtain products on credit and pay after 180 days. The G-G framework will eliminate the short-term volatility of the nominal exchange rates driven by the global scarcity of dollars, giving the government room to restart the interbank forex market.

The long-term supply of fuel through the framework will ensure stability and predictive capacity on pricing, and those using fuel as an input will get relief.

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“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 Cabinet Secretary Davis Chirchir says the G-G model is working and the Kenya shilling is progressively gaining strength. 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. Trade and Development Bank, the lead bank, and other local banks will raise funds to finance the importation of petroleum products. (KNA)

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KALU MENGOhttp://www.businesstoday.co.ke
Kalu Mengo is a Senior Reporter With Business Today. Email: [email protected]
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