Kenya is reassessing the process for banks to confirm letters of credit linked to the government’s fuel agreement with Gulf countries, following a recent delay in discharging a fuel shipment. The Energy and Petroleum Regulatory Authority (Epra) identified paperwork issues between the issuing and confirming banks as the cause of the delay. Epra’s director-general stated that steps are being taken to streamline the confirmation process to prevent future disruptions.
Key Points:
- Recent Disruption and Response: A delay occurred in unloading a shipment of super petrol last week due to paperwork challenges with the issuing and confirming banks. Epra emphasized that potential disruptions to product supply were averted, and steps are underway to resolve the confirmation process.
- Streamlining Confirmation Process: Kenya is working on a structure that would eliminate the need for confirmation of letters of credit. Epra is aiming to address potential challenges in the confirmation process, which have been identified as a source of delays.
- Concerns from Market Players: Some industry experts expressed skepticism about the viability of a confirmation process without letters of credit. They pointed out that the discharge of a consignment is typically contingent on the confirmation of letters of credit, which are evaluated based on the issuing banks’ financial health.
- Background on Fuel Deal: In March of the current year, Kenya transitioned from sourcing petroleum products through an open tender system to a credit-based arrangement with major Gulf oil companies. This arrangement involved letters of credit as a key element of the transaction process.
- Debt Payment and Supply Deal Status: Kenya is preparing to make a payment of Sh247.43 billion ($1.64 billion) as the next installment of its debt to the Gulf oil firms involved in the government-to-government supply agreement. The Senate Committee on Energy reported that the UAE and Saudi Arabia oil companies have received Sh127.26 billion ($848,378,738) from the fuel supply on credit since the deal’s inception in March.
Conclusion: Kenya’s review of the letter of credit confirmation process in its fuel agreement with Gulf countries underscores the importance of smooth transactional procedures. By addressing challenges in the confirmation process, the government aims to prevent potential disruptions in the supply chain and ensure the continued success of the agreement.
