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The long-awaited first consignment of fuel from the Middle East landed in Mombasa last week ushering what may be a new era after Kenya moved to purchase the much-coveted commodity in Kenya shillings as opposed to dollars.

No sooner had the first two ships ferrying 165,000 metric tonnes of fuel docked at the Kipevu Oil Terminal in Mombasa than pundits announced the stroke of genius that saw Kenya opt for a government-to-government deal, killing several birds with one stone.

Indeed, the State has managed to turn the dollar problem on its head and dealt it a fuel challenge in an experiment that will set the sector for very interesting times ahead.

Much as the excitement is palpable among consumers, the cost of refinancing the commodity means Kenyans should hold their horses since pump prices may not decrease given the additional costs of freight and premium to refinance the deal.

However, the move will help our debt ridden and dollar challenged country to import fuel on credit which will not only ease pressure on the dollar demand, but will also help strengthen the struggling shilling during these tough times. The dollar challenge is attributed to repayments of loans to bilateral and commercial lenders and imports, given that Kenya is a net importer of commodities, as well as efforts by the Central Bank of Kenya (CBK) to stop the downward spiral of the Kenya shilling against the greenback. Some firms and importers are also hoarding dollars in what is now a dual market in greenbacks whereby the exchange rates in banks are higher than the official CBK rates.

Therefore, with fuel imports being among the single major import bill, gobbling up in excess of 30 per cent of Kenya’s import bill mostly paid in dollars, the new attempt by the government could be a game-changer.

It is estimated that Kenyan oil companies spend in excess of Sh67 billion on fuel imports monthly, which implies that the fuel deal will help the economy keep quite a sizable amount of dollars estimated at Sh265 billion for other sectors out of Sh397 billion. This also increases availability of dollars locally for other traders who have been complaining about the greenback.

Usually, oil marketers scramble to get dollars each month to pay for their fuel imports, but the new deal gives the fuel-importing OMC relief for six months, during which period they can raise the required dollars before the window expires in September. If the deal manages to strengthen the shilling, then the government will have the bragging rights because this will help bring down cost of imported products, and should the cost of fuel come down, this will be a bonus because fuel is a major enabler of the economy and a slight increase usually affects all the sectors of the economy.

It is, therefore, interesting to note that the government says it will revert back to the Open Tender System  if the dollar crisis eases, raising concerns that the outcome of this project may need further dialogue on the merits of such deals.

In any case, there is already an ongoing de-dollarisation dialogue taking place in most parts of the world, and since Kenya’s move is deep in the thick of such a debate, the fundamental question is why should they country opt out of such deals if they can cure what has increasingly become a dollar malady? In any case, such a move not only diversifies risks, but also strengthens the currency and enhances our monetary policy independence.  Anyway, signing the fuel deal and importing the commodity is only one side of the story since there is the element of the fuel flowing from Mombasa to the countryside without a hitch. This will be done alongside what had already been ordered through the ongoing open tender system  in what will be an acid test for the ministry, the regulator and Kenya Pipeline Company. However, questions will linger as to why the government allowed foreign-owned oil companies to nominate the local oil dealers to import the fuel for the rest of the Kenyan market.

—The writer is the Business Editor, People Daily