Minister cautious on oil hedging agreements

Public Investments Minister Austin Gatt yesterday sounded a note of caution over the hedging of oil purchases saying that even small mistakes would cost Malta dearly.

He said when replying to questions in parliament that Enemalta has hedged 20 per cent of its oil purchases once in recent times but hedging was not a magic wand and although money could be saved, millions could be lost in the same manner.

Replying to supplementary questions by Labour MPs Leo Brincat and Joe Mizzi and Nationalist MP Jesmond Pullicino Orland, the minister said one particular problem at Enemalta was that the corporation never formally had an oil hedging committee. This was, in his opinion, unacceptable in the context of a corporation.

He said that the corporation was lucky in the sense that its current financial controller had spent a long time in the oil hedging committee of Air Malta.

He pointed out that Enemalta bought its oil not at the price of the day but at the average price of the month.

Dr Gatt said that the Labour government used to hedge regularly and there were instances where hedging had had positive results and other instances when results were negative.

A hedging agreement in 1997 had yielded savings but that was lost when oil prices fell in the following year.

The minister said that even though Air Malta had good hedging agreements, it still had to twice impose a fuel surchage, with a third possible.

The minister said that the average price of oil in 1996 was $20.71, in 1997 it was $19.04, in 1998 $12.52, in 1999 $17.51, in 2000 $28.26, in 2001 $22.95, in 2002 $24 and in 2003 $28.5.

This showed that had Malta started hedging in 2000, it would have lost money in 2001, 2002 and 2003.