How oil is purchased - ministry explains
There was nothing underhanded in the way Enemalta purchased its oil for energy generation purposes, the Ministry for Investment said yesterday. The ministry was reacting to Labour leader Joseph Muscat's comments on Sunday when he questioned the transparency in the way oil was bought.
The ministry said every so often, usually within a year or 18 months, Enemalta issued an international call for tenders to buy oil for which several international oil companies normally applied. Currently, fuel oil and gas oil are being supplied by the Italian company Totsa.
In view of price volatility, the tenders were not based on lowest prices but on margins. In the case of fuel oil and gas oil, Enemalta's purchases were based on the Platts average monthly benchmark, which took into account international oil prices in Mediterranean markets.
This was an open, transparent process, open to international competition, and prices were determined by the market, the ministry said.
It said there were no extra costs associated with hedging and there were periods when hedging was made or could not be made.
"A classic example of this is the new electricity tariff, where oil expenses were based exclusively on international market prices in 2010."
Hedging had nothing to do with direct oil purchases but was a financial instrument. Hedging was made with the banks, not the oil companies. And most deals were made on crude oil and not the type of oil used by Enemalta.
The ministry pointed out that the Opposition refused to sit on the Fuel Procurement Committee when it was set up in 2005.As a result of the committee's recommendations, Enemalta had also set up a committee on Financial Risk Management and hedging headed by Enemalta officials including the chairman, his deputy and the CEO who worked in consultation with the Central Bank and leading international intermediaries.
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victor caruana
Jan 12th 2010, 17:34
@John Xerri and Joe Vella
When you do not know what one is talking about, just shut up, disappear or at least ask for enlightment.
Platts high, mid and low prices are published everyday for all energy prices. It has nothing to do with cold or warm wars or any other dream of yours. If one is imcompetent, one is incompetent and arguing about it leads nowhere.
Alfred Farrugia
Jan 12th 2010, 17:30
The Ministry concerned and Enemalta are probably doing the best they can under the current circumstances, although I do not understand why “tenders were not based on lowest prices but on margins”! I am not an expert in fuel procurement.
Who are Totsa’s representatives in Malta? Does this mean that our petrol service stations are providing us with Total fuel? Has Total been asked to give any support to our University as it is doing with the College de France?
http://www.total.com/en/group-940486.html
What happened to the liberalization of the importation of fuels? Why cannot Total compete with Shell, BP and Exxon as used to happen in the past? The Labour government of the 1970’s was criticized for the nationalization of the local fuel market. It has been found quite comfortable by subsequent administrations during the past 20 years to maintain the status quo. Why cannot we get all the benefits of EU membership?
Enemalta should continue to import a brand of fuel to compete against any potential price fixing by cartels, but it should not enjoy monopoly benefits to our detriment. The fuel market ought to be open in accordance with EU rules and regulations.
lgalea
Jan 12th 2010, 17:01
Joe Vella
The dark ages are the years spent under pn governments. The eu prevented us from continuing to enjoy a lower than market price oil agreement with Libya because it considers that we would be unfairly competing with other eu competitors who get their oil at a higher price. This is another negative aspect of eu membership because of which we are suffering dire consequences.
Joe Vella
Jan 12th 2010, 15:10
@ Victor Caruana
Perhaps there is no Cold War going on now to exploit as was the case during most of Mintoff's dark ages. I am sure that market conditions now and then are not quite the same to make a comparison.
John Xerri
Jan 12th 2010, 13:05
@ Victor Caruana
Can you please tell me in the coming month , which day the price of Oil is going to be at its' lowest level.
victor caruana
Jan 12th 2010, 11:46
quote: ' fuel oil and gas oil, Enemalta's purchases were based on the Platts average monthly benchmark,'. And why, may I ask they were not purchased at Platts low or below as we used to do in the Mintoff's dark ages.
And what is the benchmark price for petro and jet kero? Hope it is not Platts high!!!!
Effective negotiation means getting the best prices and not repeat the sellers excuse (prices based on margins due to volatility) to justify the incompetence of our dealers in energy products.
Not everybody is an idiot, mind you!!!!