A surprise bond issued on Tuesday targets raising billions to pay part of the Sh45.8 billion debt owed to oil marketers carried forward from the fuel subsidy scheme that the government discontinued.
A communique seen by the Business Daily has revealed the government intends to raise Sh17.5 billion in the first tranche of the three-year bond that closes Friday. The interest rate is 14.22 percent.
The second tranche of the remaining Sh28 billion bond will be issued in the second week of next month, with the government admitting that it was forced to split the bond due to the Exchequer’s thinning fiscal space in the financial year ending this month.
The government early this month opted to float a bond to clear the billions owed to oil marketers amid protests by a section of the dealers that the State arm-twisted them to accept the bond payment.
“As a follow up to our communication below, please find attached the prospectus for the bond that you shall be subscribing to once it opens up for tap sales. CBK shall open the bond for tap sales today, 20th June 2023. Note that the bond has been trading since 15th May and not 10th May,” read the communique.
“The first interest payment shall be made in November 2023 and all applicants will be paid interest as though they subscribed to the bond on 10th May 2023.”
Oil marketers have since April 2021 pocketed Sh124.07 billion under the subsidy meant to cushion consumers against high pump prices and settlement of the debt will bring the total payout to Sh169.89 billion.
The sale has come as a surprise given the exchequer had raised more than Sh200 billion last week through government paper, but the Treasury’s cash needs remain elevated due to ongoing debt service and pending payments.
But oil marketers who spoke to the Business Daily in confidence said State officials informed them of the decision to issue the bond, adding that they risked missing out on the payment of the billions should they reject the proposal.
“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 (Sh45.8 billion) goes the yield shift route,” said another oil dealer.
Oil marketers have since last year been thrown into a cash crunch after the unpaid money increased significantly, with the small oil dealers hit hardest.
The State added that out of the Sh45.8 billion, some Sh151 million would be paid to the small oil dealers within a short time, with the remaining amount to be paid via the three-year bond.
Vivo Energy, which controls nearly a quarter of the local fuel market, is owed Sh13.45 billion followed by TotalEnergies at Sh8.16 billion and Rubis, the third biggest oil marketer (Sh4.03 billion).
High prices
Oryx Energy is yet to be paid Sh3.48 billion followed by Ola at Sh2.31 billion, Galana Oil (Sh1.24 billion) and Gapco (Sh1.01 billion).
The Treasury has been struggling to compensate the oil marketers for the fuel stabilisation scheme that was rolled out in April 2021 in a bid to cushion consumers against high pump prices.
The State scrapped the scheme last month as it moved in to ease pressure on an already choking Exchequer, sending fuel prices to record highs.
The government has been running out of fiscal space, with reports that it has been forced to delay salary payments for a section of the civil service.
