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Orange Democratic Movement (ODM)  leader Raila Odinga yesterday challenged investigative agencies to probe the Government-to-Government fuel deal that Kenya entered with two United Arab Emirates and Saudi Arabia firms, claiming that the deal has created a breeding ground for corruption.

The former Prime Minister described the deal as a “grand scam” that has inflated fuel prices in the country and the landlocked East African countries that transport their fuel through the country. According to him, the contract has benefited “cartels” within the government and threatens to paralyse Kenya Pipeline Company (KPC) operations.

“Other than keeping the cost of oil permanently high in Kenya, the deal is costing the country dearly in terms of trade in petroleum with landlocked neighbours,” Raila said.

But in a rejoinder, the Leader of Majority in the National Assembly, Kimani Ichung’wah, described Raila’s statement as “hot air” and “political propaganda”.

Daring President William Ruto to publish the contract between Kenya and the governments of the United Arab Emirates and Saudi Arabia, if there is any, Raila claimed the pact was a decoy to create room for cartels to import cheap fuel and sell it to Kenyans at high prices.

He said there was no Government-to-Government contract and that what was signed was an agreement between the Ministry of Energy and Petroleum and State-owned petroleum companies in the Middle East. Ichung’wah said the ministry was a Kenya government agency and three firms — Aramco of Saudi Arabia and ADNOC of the United Arabs Emirate — are State-owned.

“If that is not a Government-to-Government deal, what else is G-to-G if not a contract signed between a government ministry and a State-owned corporation?” he asked in a statement to newsrooms.

The government has in the recent past credited the deal for reducing demand on the dollar in Kenya, thus stabilising the currency currently exchanging at Sh152.

The deal has also been credited with securing fuel supply after the Ruto administration stopped fuel subsidies introduced by the Jubilee government to cushion citizens against high fuel prices.

“Why Ruto chose to characterise the deal as Government-to-Government is the first red flag that points to mischief in this deal,” Raila said yesterday. “We now know that the characterisation of this deal as a government-to-government was meant to shield three Kenyan companies from paying 30 per cent corporate tax.”

Ichung’wah challenged Raila to table proof that the three Kenyan firms were not paying their taxes.

The 2022 Azimio presidential candidate said only President Ruto and a few of his handlers know how Gulf Energy, Galana Oil Kenya Ltd and Oryx Energies Kenya Limited were nominated to handle local logistics once the oil had arrived.

Local logistics

Government sources say the Middle East companies exporting fuel to Kenya nominated the three Kenyan firms as their local agents when Kenya government officials were negotiating the contract. At a press conference in Nairobi, Raila claimed that the “hand-picked” distributors were selling fuel at almost twice the price offered by bulk suppliers.

He also said the government allowed Oryx Energies to sell fuel at prices that had been inflated by 17 per cent in August. Oryx supplies diesel to other oil marketing companies (OMCs) in the country. Raila said the three firms buy fuel at lower prices, delay discharging their cargo, and then allowed to offload at higher prices. The cost is passed onto consumers.

Kenya buys fuel on a regular 30 to 45-day cycle to ensure constant supply, which is a national security consideration. Prices are determined based on four parameters; the average global price in the preceding three months, handling charges at the port, taxes and other fees. The last price review was on Tuesday this week. The average global price is also known as average the Platts price.

“In the case of Oryx,” Raila said, “it had bought the diesel at an average Platts price of $97.88 (Sh14,182) per barrel in July, but was allowed to sell the same to OMCs at $114.5 (Sh16,585) per barrel.”

According to him, some of the companies charging the higher prices import more cargo than they are contracted to, thus forcing Kenyans to buy more of the fuel at inflated prices.

Raila issued ten demands that the Minority coalition now wants met over the deal, among them for President Ruto to immediately cancel the contract and revert to the Open Tender System (OTS) which Kenya had been using in the past and through which fuel marketers were required to bid to import fuel for specified periods not exceeding three months.

 The importers who won the bids were then required to supply other fuel companies, also known in the industry as Oil Marketing Companies (OMCs).

“The Open Tender System assigned responsibility to various players as opposed to the so-called government-to-government that is making Kenyans depend on one inefficient and corrupt player. The open tender system was efficient, accountable and competitive and offered prices commensurate with the international pricing model,” said Raila.

Product stock

However, Ichung’wah said that after President Ruto was sworn in, oil marketers sought an audience with him because they were experiencing challenges raising the $500 million they needed every month to pay for fuel imports.

“Kenyans will recall there were product stockouts in many petrol stations and they had to queue for fuel,” said Ichung’wah, who is also the Member of Parliament for Kikuyu.

Earlier, Raila had also asked the Ethics and Anti-Corruption Commission (EACC) to investigate how and why the government got into the contract and who are the beneficiaries. He also called for the sacking and prosecution of the officials who crafted the deal, which he described as “self-serving”.

Raila also asked the Treasury to restore VAT to petroleum products to eight per cent from the current 16 per cent that came with the Finance Act 2023.

Such a change would require parliamentary approval to amend the Act as such a move would affect tax collection at a time when the country has reached its debt ceiling. “The shilling has continued to fall against the dollar while the scarcity of the dollar has continued. The land-locked countries that depend on us for oil are abandoning our pipeline because it has become too expensive,” said Raila.

According to him, the deal has not addressed any of the problems President Ruto said it would.

“When Ruto initiated this deal, the US-dollar to Kenya-shilling exchange rate was Sh132. Today, six months later, it is Sh159 to the dollar. The cost of fuel shot up significantly after the deal. Why have things moved from bad to worse since the deal?” asked Raila.

“To date, only two documents have been made public; that is the Master Framework Agreement with petroleum trading entities and the Open Tender System modified agreement with marketers. The Supplier Purchase Agreement between the Middle East Oil firms and their handpicked distributors in Kenya has never been seen. We challenge President Ruto to publish this document”.

According to him, ships had to wait on the high seas for up to 18 days awaiting confirmation of letters of credit before they could discharge fuel and this ended up delaying Kenya Pipeline Company operations for days.

The shipping companies incur demurrages, which are transferred to the consumer at the pump, he said.

“As ships accumulate extra charges in the high seas, the money sits in an Escrow account in a local bank where it earns interest. It remains unclear who the beneficiary of the accrued interest is,” said Raila.

Large-scale fuel purchases, which involve hundreds of millions of dollars, are backed by bank guarantees to prevent default on the part of the purchaser and to shield exporters from risk. In Kenya’s case, five banks are involved in the arrangement.

Additional reporting by Barack Oduor and Janet Wangui