Ksh45bn fuel subsidy arrears turned into bonds

According to individuals acquainted with the situation, the companies want their estimated Ksh45 billion in arrears to be converted into a three-year debt instrument that will provide them the chance to pay interest on a regular basis during that time.
The arrangement is viewed as mutually beneficial since it will protect a government under financial stress from having to raise the billions up front while giving gasoline dealers recurring interest payments over the course of three years.
Marketers could earn interest of around Ksh6.25 billion in the first year if their arrears would be set at the market rate given that a three-year bond now fetches average yields of 14.5%.
“We voiced our worry that while we continue to experience cash flow issues, our money was sitting with the government collecting no interest.” On the condition of anonymity, a prominent dealer executive warned, “We are concerned that if this situation persists, we would be the ones at a loss.” He added.
Fuel retailers are struggling with cash flow issues as a result of delays in the government’s distribution of subsidies to the businesses, with small dealers being particularly hard hit due to worries about bank failures.
For instance, Total Energies stated that it took Ksh14.5 billion in short-term loans in the year ending in December as the well-oiled multinationals were hurt by the delays in payments.
Another top executive in the petroleum industry stated, “The idea has been agreed to in principle with the National Treasury but we are waiting for finer specifics on how it would be executed should it be accepted.”
Since 2021, the Treasury has struggled to pay oil dealers for maintaining low pump prices, which has caused concern in the sector as dealers struggle with cash flow issues.
The government finally ended the subsidy last month under pressure from the International Monetary Fund and the compensation delays, which led to an increase in pump prices.  Kerosene prices rose by Ksh15.19 per litre, and diesel prices rose by Ksh6.40 per litre.
If used throughout the fiscal year ending in June, the gasoline subsidies were expected to cost taxpayers Sh119 billion, according to the IMF. Since April 2021, the government has spent Ksh124.1 billion subsidizing fuel, which has helped to stabilize gas prices and lower inflationary pressure.
Nearly a quarter of the local fuel market is controlled by Vivo Energy, which is owing Ksh13.45 billion. Total Energies is next with Ksh8.16 billion, and Rubis is the third-largest oil marketer with Ksh4.03 billion.
A three-year bond with a primary issuance that raised Ksh20.7 billion and two tap sales that raised Ksh10.6 billion and Ksh27.2 billion to supplement it. There are still Sh3.48 billion outstanding to Oryx Energy, Ksh2.31 billion to Ola, Ksh1.24 billion to Galana Oil, and Ksh1.01 billion to Gapco.
According to the Energy and Petroleum Regulatory Authority, the arrears have been verified and delivered to the Treasury for further action.
The Treasury has relied on the three-year bond to mobilize domestic debt at the moment as investors steer clear of long-term securities. The intention to transform the Ksh45 billion arrears into an interest-earning debt was announced at this time.
The government reopened two bonds in April, including one with a three-year maturity for which bids totaling a pitiful Ksh7.3 billion were received as opposed to the intended Ksh30.0 billion.
However, things began to turn around in May when the government raised Ksh58.5 billion from
The Kenya Kwanza manifesto stated intentions to investigate securitization as one of the approaches to handle the backlog of unpaid bills, which has put suppliers in financial trouble, in the run-up to the August 2022 elections.
The Kenya Kwanza Manifesto stated, “A transactions advisor will be engaged to advise on the securitization of the outstanding bills subject to verification. This is to remove the pressure of settling pending bills from the annual budget allocations.”
One of the largest gainers from Kenya Kwanza’s first supplementary budget was the Ministry of Petroleum, which saw a raise in funding from Ksh24.7 billion to Ksh66.4 billion for the fiscal year that ends in June.
The additional Ksh21.7 billion was placed aside to help pay off fuel subsidy debt.
Business Daily