It was impossible to give hedging advice in a very volatile market, a former chairman of Enemalta told the Public Accounts Committee last night.
Roderick Chalmers, who also chaired the fuel procurement advisory committee, said that back in 2006 the real issue was the proper strategy for the corporation’s product pricing, rather than hedging.
Hedging for profit, he said, became speculation, which could be very dangerous. The PAC is considering the Auditor General’s report on the effectiveness of Enemalta’s fuel procurement between 2008 and 2011.
Mr Chalmers was asked by chairman Jason Azzopardi (PN) to comment on what he said was former advisory committee member Joseph Agius’s “song and dance” at the PAC last week – that earlier hedging would have saved the corporation millions.
Hedging for profit, became speculation, which could be very dangerous
The former Enemalta chairman said one could find many experts with the benefit of hindsight. It was actually “impossible” to give hedging advice in a very volatile market.
Enemalta had never been equipped except for short-term price stability – and that was exactly what it was still doing today.
On other points, he said he had never found any difficulty getting to meet then minister Austin Gatt, nor seen any undue interference from him.
Going through the various sectors in the corporation’s operations, he said Enemalta used to import jet fuel on spot basis and sell it to the industry with a small mark-up. Consumer products (petrol and diesel) were bought on spot basis and prices for consumers were changed every quarter, then monthly from November 2005. For both sectors the principle was “user pays”. Prices for electricity had not changed until the 70 per cent surcharge in 2004, when fuel had actually surged by 250 per cent and jet fuel by 600 per cent.
Enemalta did not have to hedge prices for aviation fuel because the airlines were doing their own thing. For consumer prices like petrol and diesel, at times there were pressures for hedging. As for fuel prices for fuel generation the preferred attitude was a longer price-line on a forward basis to help stability.
He agreed with the Auditor General’s observation that the fuel procurement advisory committee’s recommendations to the board of directors had been neither a policy nor a strategy. But he was “less persuaded” on the AG’s observations on hedging.
The PAC is tentatively adjourned to July 28.