The politics and economics of Kenya’s G-to-G fuel programme: How pricing is affecting the Kenyan consumer

NAIROBI: WHILE many nations are creating strategies to assist their citizens in coping with the oil crisis caused by wars that have disrupted oil supplies in their markets, Kenya has taken the opportunity to exploit its citizens.

MP Ndindi Nyoro is showing the public that the situation is unfavourable for Kenya and Kenyans compared to other nations and is urging Kenyans to stay alert, because ultimately, ordinary Kenyans, especially those from low-income households, are the ones who bear the costs.

According to Mr Nyoro, a highly respected member of the Kenyan Parliament known for his knowledge and insight, the Government-to Government (G-to-G) fuel importation programme in Kenya was established as a strategic policy measure to stabilise fuel supplies, reduce pressure on foreign exchange reserves, and protect citizens from volatile global oil prices.

Essentially, the system was designed to enable Kenya to import petroleum products via bilateral agreements primarily with Gulf oil producers such as Saudi Aramco, Emirates National Oil Company (ENOC), and Abu Dhabi National Oil Company on credit terms rather than through open-market spot purchases. Undeniably, this was a brilliant idea.

However, as an analyst, I have observed that recent comments by Kiharu Member of Parliament Mr Nyoro have exposed the darker side of this arrangement.

Nyoro has described the G-to-G system not as a purely economic solution but as a “business entrenched in patronage” that is ultimately burdening ordinary Kenyans.

To ensure we are aligned, let us understand the G-to-G fuel programme.

The G-to-G framework was introduced in 2023, when Kenya faced acute dollar shortages and rising global oil prices.

Under this system, Gulf oil companies supply fuel to Kenya on a 180-day credit arrangement, easing immediate demand for dollars.

On the other hand, local oil marketing companies act as intermediaries in the domestic distribution of fuel.

Seeing its benefits, the arrangement was extended through 2028, indicating a strong government commitment to the model. Since then, the government has consistently defended the programme, arguing that it stabilises prices and ensures a reliable supply during global shocks.

Yet beneath this official narrative lies a contentious political and economic debate that my countrymen don’t fully comprehend.

Just as those involved beneath the architect’s scheme of exploiting hard-working Kenyans would prefer to keep it from many Kenyans, Mr Nyoro’s criticism goes beyond mere technical inefficiencies, he describes the G-to-G system as a political economy problem.

In my view, Mr Nyoro contends that the programme has become a closed network controlled by a few politically connected firms; it functions as a “business” rather than a public service mechanism, benefitting elites more than citizens, and importantly, ongoing investigations into fuel importation scandals are “a fight among elites… about who eats what.”

This framing is essential and provides lessons to other nations dealing with mechanisms to support their populations during the fuel shortage and high prices caused by the war, because it shifts the discussion from policy creation to governance and accountability.

In Nyoro’s view, the issue is not whether G-to-G is fundamentally flawed, but whether it has been influenced by rent-seeking interests. For Kenya, following Mr Nyoro’s revelation, evidence of distortions indicates pricing and market manipulation, thus supporting Nyoro’s concerns.

Some fuel cargoes imported outside the G-to-G framework were priced KSh 50–80 higher per unit, exposing Kenya to losses of up to KSh 3 billion.

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In another case, two local firms imported petrol at three times the cost of G-to-G fuel. At first glance, these figures appear to support the government’s argument that G-to-G is cheaper.

However, the deeper issue is who controls access to the cheaper G-to-G fuel. If only a select group of companies is allowed to participate, they not only gain disproportionate market power but also influence pricing structures and become gatekeepers of a crucial national resource.

In economics, this results in what is known as a dual market system one privileged and subsidised, the other exposed and costly. Let us examine how patronage results in higher costs for Kenyans.

The link between patronage and consumer hardship is not always direct, but in this case, it is significant. Why? Reduced Competition.

By restricting participation to a few firms, the G-to-G system effectively diminishes competition.

In a competitive market, multiple importers would bid for supplies, driving prices down. However, under a controlled system, prices are influenced by administrative decisions rather than market forces, and inefficiencies are passed on to consumers.

Even when G-to-G fuel seems cheaper at the import stage, costs can build up through distribution inefficiencies, middlemen’s margins, and a lack of transparency in pricing structures.

These hidden costs eventually become evident at the pump. Critically, the G-to-G model depends heavily on credit arrangements.

While this relieves short-term pressure, it creates future repayment obligations and exposes the country to exchange rate risks; if mismanaged, these liabilities can lead to higher taxes, increased public debt, and less fiscal space for social services.

Hon Nyoro’s main argument is that the system encourages rent-seeking and corruption. Politically connected firms gain lucrative import rights, profits are concentrated among a few actors, and public oversight remains weak.

This is a typical example of economic rents being extracted from a strategic sector, with poor Kenyan consumers, who need support, bearing the cost.

While the Kenyan government claims that the G-to-G system has stabilised fuel supply, prevented price spikes, and protected consumers during global volatility, in reality, during global crises such as Middle Eastern tensions affecting oil flows such arrangements can offer vital stability.

The policy dilemma is not exclusive to Kenya. Many nations operate state-controlled import systems, but their success relies on strong governance frameworks, which are currently lacking in Kenya.

Mr Nyoro’s assertion that the fuel saga is “a fight among elites” is particularly revealing.

It indicates that the controversy may not concern reform but rather control over lucrative supply chains; competing factions within government and business are vying for influence, and public interest runs the risk of being sidelined.

As economic analysts, we see this internal contestation as creating uncertainty that will disrupt supply chains, escalate speculative pricing, and, importantly, erode investor confidence.

In my view, in Kenya, the impact of the G-to-G controversy goes beyond just fuel prices.

It creates inflationary pressure since fuel is a key input across sectors like transport, manufacturing, and agriculture.

Additionally, higher or unstable fuel prices lead to increased costs of goods and reduced purchasing power.

Kenyan businesses already face high operating costs, as seen in distorted fuel pricing and a public trust deficit.

Perhaps the most damaging impact is on public confidence, especially when citizens perceive that policies benefit elites while costs are unfairly spread. Trust in government diminishes, making future reforms more challenging.

If I were permitted to advise Kenyans on the way forward for reforming the G-to-G Framework and to offer guidance to other EAC nations as they grapple with mechanisms to support their people during this challenging period, particularly for Kenya, rather than abolishing the G-to-G system altogether, a more pragmatic approach would involve reform, increasing transparency, broadening participation, strengthening oversight, and importantly, separating politics from procurement.

The G-to-G fuel programme in Kenya exemplifies a typical policy paradox: a system designed to stabilise the economy has, according to critics like Mr Nyoro and the former vice-president, Rigathi Gachagua, become a tool of patronage that burdens the very Kenyan citizens it was meant to protect.

While the government emphasises stability and affordability, emerging evidence and ongoing political debate particularly on church podiums when given a chance to speak indicate that who controls the system is as important as how the system is designed.

But as analysts, we critically examine what is unfolding in Kenya; ultimately, the issue is not merely about fuel; it is about governance, accountability, and the distribution of economic power.

Unless these underlying challenges are addressed, the cost of fuel in Kenya will remain not just an economic issue but a political one paid for, as Nyoro argues, from the pockets of ordinary poor Kenyans.