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.