Africa-focused banks have refused to issue letters of credit (L/Cs) to finance purchases of refined oil products from the Gulf by Kenya's state-owned National Oil Corporation (NOC).

Gulf oil producers have therefore abandoned NOC and decided instead to sell refined products to Kenya to privately owned companies.

The move is an embarrassment for the Kenyan government because it had agreed government-to-government deals with Gulf state-owned oil companies in Abu Dhabi, Dubai and Saudi Arabia to import fuel on 180-day credit terms.

Preferred suppliers

Three Gulf oil companies - Abu Dhabi National Oil Corporation (Adnoc), Emirates National Oil Corporation (Enoc) and Saudi Aramco - have now rejected a proposal to sell to NOC on credit due to its poor cash position, forcing the Kenyan government to allow the Gulf producers to nominate their preferred dealers.

Adnoc will supply diesel and jet fuel while Enoc will sell super petrol to privately owned Kenyan oil marketer, Gulf Energy. Saudi Aramco will sell refined products to pan-African and mainly Swiss-owned Oryx Energies and Galana Oil Kenya, a locally owned oil marketing company based in Nairobi.

L/C issuers

Kenya Commercial Bank (KCB), NCBA Bank, Absa Bank Kenya, Stanbic Bank and Co-op Bank, alongside the Africa Export-Import Bank, will be used for the issuance of L/Cs to the chosen oil marketers.

The reluctance of local banks to provide NOC with L/Cs is likely the result of the Kenyan state-owned oil company's difficulties servicing US$40 million of loans arranged with KCB Group and Stanbic. In 2020, the two banks threatened to seize and auction NOC assets.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.