Oil dealers claim State arm-twisting to convert debt into bond

A fuel attendant holding a fuel pump at the filling station along Kimathi Street. FILE PHOTO | NMG

The government arm-twisted oil marketers to convert Sh45.8 billion arrears of the fuel subsidy into a bond, as the Kenya Kwanza administration runs out of fiscal space, hurting its ability to settle pending bills locally.

Oil marketers told the Business Daily State officials informed them of the decision early this month, adding that they risk missing out on the payment of the billions should they reject the proposal.

The government said early this month it struck an agreement with oil marketers to convert the Sh45.8 billion subsidy arrears into a three-year government paper but most of the dealers are said to have declined.

Read: Fuel dealers in deal to convert Sh45bn subsidy arrears into bond

The conversion is set to ease the burden of making billions of shillings in a one-off payment as the government races to ensure it does not default on foreign debt payments without disrupting other operations.

“Companies were either to convert the debt to bonds or be willing to wait longer without any defined timelines. This came from the government but was made to look like it came from oil companies through the Petroleum Institute,” one of the executives said.

“That (bond) was the only option on the table, otherwise it (Sh45 billion) goes the yield shift route,” said another oil dealer.

Treasury Principal Secretary Chris Kiptoo did not respond to our queries on the claim.

The first tranche of the bond seeking to raise Sh17.5 billion was issued last week at a rate of 14.22 percent.

Read: Kenya floats Sh17.5bn bond to pay oil marketers

The second tranche of the remaining Sh28 billion bond will be issued in the second week of July, with the government admitting that it was forced to split the bond due to the Exchequer’s thinning fiscal space in the year.

The Treasury has been struggling to compensate the oil marketers for the fuel stabilisation scheme that was rolled out in April 2021.

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