The Treasury is set to float the second tranche of a bond worth Ksh 28 billion this week to clear the pending bill from the fuel subsidy owed to oil dealers. This bond is part of the Ksh 45 billion debt that the government converted into a three-year bond as it struggled to settle arrears owed to oil marketers. The first tranche, which closed three weeks ago, raised Ksh 3.5 billion more than the target of Ksh 15 billion after the bond was split due to fiscal constraints.
The Treasury has faced challenges compensating oil marketers for the subsidy, leading to the conversion of the unpaid billions into a bond. The interest rate of the bond is 14.22 percent, with the first interest payment scheduled for November. The Treasury has paid oil marketers Ksh 124.07 billion since April 2021 to keep fuel prices low, but it is still struggling to settle the remaining Ksh 45 billion.
The phased discontinuation of the fuel subsidy scheme began in September last year to relieve pressure on the Exchequer, resulting in record-high fuel prices. Oil dealers, including Vivo Energy, TotalEnergies, and Rubis, are owed significant amounts, causing cash crunches and concerns about loan defaults among smaller local marketers.
The bond issuance will enable the Treasury to make interest payments to the dealers over the years, alleviating the need for a one-off payment of billions of shillings. This move aims to ease the cash crunch at the Exchequer amid spending pressures arising from elevated debt service costs and a weakening shilling.
Opinion: The issuance of the second tranche of the bond demonstrates the government’s commitment to clearing the fuel subsidy pending bill and addressing the financial challenges faced by oil dealers. By converting the outstanding debt into a bond, the Treasury can manage the payments over time, easing the burden on its cash flow. However, it is essential for the government to find long-term solutions to ensure timely payments to oil marketers and prevent disruptions in the fuel supply chain.