By Duncan Miriri
NAIROBI (Reuters) -Kenya is asking up to a year to pay for imported oil rather than as soon as it is delivered to relieve pressure on the foreign exchange rate, Energy Minister Davis Chirchir said on Monday.
The East African nation’s useable foreign exchange reserves shrank to less than enough to cover four months of imports of all kinds, which is a statutory requirement.
Oil prices account for a significant part as international benchmark Brent is above $80 a barrel, even though it has dropped from a peak of $139 in March last year.
“When products arrive in Mombasa (port) today, we pay about $500 million within three days. That causes significant pressure,” the minister told reporters.
The government will provide a letter to importers and their suppliers abroad, confirming that payments will be made when they are due, Chirchir said, adding that Kenya is seeking to pay in between six months and up to a year.
A trading source familiar with the matter told Reuters on condition of anonymity it has already asked fuel suppliers for 180 days credit, saying it needs to keep dollars to meet sovereign debt repayment obligations.
A currency trader at a Nairobi commercial bank, who also asked not to be named because he was not authorised to speak to the press, said the energy minister’s plan was unlikely to work and would transfer the risk to the banks involved.
“We are just kicking that can down the road and it could grow into a monster that is harder to slay,” the trader said.
The shilling has lost a fifth of its value against the dollar in the last three years. Traders partly blame the weakness on the central bank’s aggressive market policing, which has subdued the interbank hard currency market.
Foreign exchange reserves stand at $6.86 billion, enough for 3.84 months of import cover.
Patrick Njoroge, the governor of the central bank, has rejected criticism of its policy, saying the regulator only intervenes when there is extreme volatility.
Kenya runs an open tender system whereby individual oil retailers bid to import products for the rest of the industry every two months. The longer payment period could take effect in the coming months, Chirchir said.
“There are guys working around the clock to make sure that the products for April/May are supplied under that framework,” he said.
It is unclear whether other countries have managed to negotiate the terms Kenya is seeking, although traders said Ghana is negotiating gold for oil deals.
(Reporting by Duncan Miriri in Nairobi and Julia Payne in London;Editing by Barbara Lewis)