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Hedge Ghana’s oil—IFS to govt

  • SOURCE: | qwesa2big
  • The Institute for Fiscal Studies (IFS) is urging government to immediately hedge its oil import and export to control the price of fuel at the pumps, and also generate enough revenue.

    According to the institute, the move will insure the country against cost of importing crude oil and also cushion government against exchange rate volatilities.

    Speaking at a press conference in Accra, the Executive Director of the IFS, Professor Newman Kusi stated that, it is time for government reintroduce hedging into the export and import of oil after the practice was stopped in 2013.

    “The IFS welcomes hedging as a step in the right direction, given that hedging provides an insurance to mitigate the adverse impact of oil price volatility”.

    Prof. Kusi was of the view that the country stands to lose foreign exchange earnings if an oil hedging program is not put in place to cushion Ghana in its export.

    “When oil price increases, the country suffers through increases in its oil import bill. Both scenarios are undesirable and can be mitigated by an effective hedging program to ensure stability in fiscal management”.

    Prof. Kusi recounted that hedging is not entirely new to Ghana’s fiscal management system.

    He stated for instance that government, in March 2010, government undertook a risk management move in collaboration with one of the world’s reputable banks, Goldman Sachs, to implement a Commodity Risk Management Policy to help protect the economy from the volatilities in oil prices.

    “In line with the policy, a National Risk Management Committee was established and charged with the responsibility of hedging Ghana’s oil imports and exports through “call” and “put” options, respectively. Initially, the government hedged at a strike price of US$82.50 per barrel on monthly imports of 1,000,000 barrels”.

    He stated that by July 2011, hedging was increased to 2,000,000 barrels of imports per month at an average strike price of US$115.00 per barrel.

    “The program proved immensely successful, and by end-2011, the scope of the hedging program had been expanded to provide a 100% cover for Ghana’s oil imports”.

    Lashing out at government for abandoning hedging in 2013, Professor Kusi stated that Ghana’s Jubilee Partners – Kosmos, Anadarko and Tullow Oil, however did not abandoned the move and benefit greatyly form it.

    “While Ghana’s crude oil sold for an average price of US$46.13 per barrel on the world market in 2016, Kosmos and Tullow raked in US$73.60 and US$61.70 per barrel, respectively”.

    “Ghana’s previous experience with hedging points to one key lesson: with a well-designed hedging program, it is possible to protect the country against volatilities in commodity prices through the “call” and “put” options”, he suggested.

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