Banks in Kenya look set to earn lower fees from letters of credit (L/Cs) opened by oil product importers.

A report commissioned by the Energy Regulatory Commission (ERC) has recommended a 33 per cent reduction in the fees banks are able to charge for L/Cs opened by the importers.

Reduced cap

Current L/C terms allow banks to charge a maximum of 1.2 per cent of the cost of an oil product shipment, including transport costs.

The report recommends the maximum banks are allowed to charge should be reduced to just 0.8 per cent of a shipment cost.

Competitive L/Cs

"It is recommended that a letter or credit allowance of 0.8 per cent be applied to all imports. This will allow importers to seek competitive letter of credit rates," the report states.

Every month, Kenya's energy ministry awards the right to import oil products in bulk to a single oil marketer that then distributes refined oil products to other traders and retailers, including Total and Shell.

In February, banks issued L/Cs of around US$2.5 million for shipments of petrol, diesel and kerosene.

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