Enemalta’s hedging in the late 1990s had attracted criticism. Photo: Matthew Mirabelli

Part of the fuel procurement advisory committee’s advice to Enemalta Corporation in 2006 was to seek some sort of insurance cover for any catastrophic or extraordinary geopolitical event.

The advice was given in view of the widespread anxiety after the Iraq war and the fear that Israel might drop a nuclear bomb on Iran, the corporation’s former chairman, Roderick Chalmers, told the Public Accounts Committee yesterday.

Fuel procurement and hedging were two different transactions: the first was something physical and the second a synthetic transaction on paper, he said when questioned by Justice Minister Owen Bonnici.

Referring to what the Auditor General had described as “neither a policy nor a strategy document”, Mr Chalmers said that what the Enemalta board had given to then minister Austin Gatt was a complex policy containing very specific recommendations about adopting a user-pays pricing policy that would reflect world market prices.

To Mr Chalmers it was a simple process. When he had met Dr Gatt in 2006, pronounced market volatility was causing anxiety.

Enemalta had done some hedging in the late 1990s and the results had attracted a lot of criticism.

He had told Dr Gatt there should be a task force.

Some people in government were uncomfortable about going back to hedging.

The hedging policy had eventually been adopted in April 2005.

Mr Chalmers said it was absolutely not advisable for a public liability company to hedge in a vacuum. One needed to know what one was trying to achieve: secure price certainty and mitigate price fluctuations. This called for self-discipline in documentation.

On the other hand, some wanted to speculate to secure a profit, which was directly opposite to hedging, even though it was still called a hedging transaction.

Mr Chalmers said the fuel procurement advisory committee’s advice to Enemalta included the desirability of having quarterly stability rather than changing prices every month.

Advice given due to anxiety after the Iraq war and fear Israel might drop a nuclear bomb on Iran

Stability in generation prices was an especially-important cost factor for an industry like tourism.

The corporation’s financial statements showed that it had not employed the user-pays principle, with utility prices being increased first by 17 per cent and later, in 2005, by 55 per cent when fuel prices had soared astronomically.

This was an unsustainable, sure road to bankruptcy.

If there was a social reason for subsidisation it would be legitimate but that should occur outside the corporation in a separate transaction, Mr Chalmers said. The PAC will meet again in October.