NPA considers hedging petroleum products from March

The National Petroleum Authority (NPA) is planning to hedge petroleum product imports for local consumption, subject to approval by the Finance Ministry.

The regulator is looking at a strike price  of $700 per metric tonne  for diesel and  $750 per metric tonne for Petrol,  while estimating annual consumption of 2.8  million metric tonnes  of products.

This translates into a hedge premium cost of between$ 8.6 million to $15 million.

The NPA is also hoping  to run the hedging programme for March 2015 to March 2016.   

Chief Executive of the National Petroleum Authority, Moses Asaga, told Joy Business although the move to hedge the commodity might come across as expensive currently,  the country stands to benefit tremendously from it.

“You know that when crude oil prices was about $107 per barrel there about the metric tonne for petroleum product was like $950 per metric tonne. So if we are putting it around $700 per metric tonne, it means we are going to save $200 per metric tonne”, he explained.

In a related development, the National Petroleum Authority is citing the depreciating cedi and sudden rise in crude prices as reasons for setting aside a planned reduction in prices at the pumps from February ending.

 Below is a statement from the Chief Executive of the NPA:

1.  Overview:
In the last couple of months, there has been on-going discussions on prices of crude oil on the international market and the impact it has on prices of petroleum product in Ghana.

More specifically, recent lowering prices of crude oil and petroleum products on the world market has yielded calls from sections of the public for lower prices of fuel for domestic consumers.

The response from the National Petroleum Authority (NPA) to these calls has been consistent with the rationale that the part of the windfall from low price of crude oil should be applied to settling debts of GHC412milionowed local Bulk Oil Distribution Companies (BDCs) incurred as a result of accrued under-recoveries as at July 2104.

2.  Background of under-recoveries/debt owed BDCs:
The mention of under-recoveries or debt owed BDCs leads me naturally to explain the background of this debt of GHC412 million owed the BDCs.

In the periods between 2013 and July 2014, Government through its social programme had intervened in the full-pass-through policy of National Petroleum Authority in order to keep prices from going up. But for this social intervention, fuel prices would have been increased more often between 2013 and 2014 than it had been.

This intervention of keeping prices at the pump lower than what they ought to be (under-recovery) led to the accumulation of under-recovery of GHC412million. This amount was owed to BDCs who imported refined petroleum products into the country at various period between 2013 and July 2014. This debt (under-recovery) had to be paid in order to guarantee regular supply of fuel to keep the economy moving. Which is why the NPA maintained that the windfall from lowering prices on the world market is applied to settling the indebtedness.

3.  Cumulative 12% Reduction in Fuel Prices:
It would be recalled that the whiles NPA continued to use the windfall from crude oil prices to pay off a debt of GHC412MILLION under-recoveries owed BDCs, there was the need to give some of the windfall to the consumer. The NPA subsequently announced a 2% reduction in the price of fuel to be followed by another reduction of 10% bringing the total reduction to 12% with a commitment to paying the debt owed the BDCs. Based on the reduced price, NPA has projected to complete payment of the debt of GHC412 million owed the BDCs by end of February 2015., I am indeed pleased to announce that the mission is accomplished.

4.  Price of Crude Oil on the world market begun to fall:

Crude Oil price on the world market fell from USD106 per barrel in July 2014 to about USD46 per barrel in December 2014 representing a decrease of 59% yielding a windfall of GHC415million. As I mention earlier, from this amount, GHC412million has been used to settle the debt (under-recoveries) owed the BDCs.

Since January 28th 2015, crude oil price has begunto rebound.  From USD46 to near USD60 per barrel representing an increase of 12%.  The NPA projects that trend will be sustained for some months.

Additionally, the GHC/USD exchange rate monitored from the Central Bank had also shown depreciation of about 3% since February 1, 2015

The Way forward:
As has been observed by the NPA, crude oil prices have begun a steady appreciation. The impact of the volatility in the prices of products and the forex rate poses a significant challenge to keeping prices low. There is therefore the need for alternatives to the policy of full-pass-through. We are considering the proposal of implementing a hedge policy by March 1st 2015. We estimate a strike price of USD700 and USD750 for diesel and petrol respectively for an estimated annual consumption of 2.8million Metric tons of products will translate into a hedge premium cost of 8.6miilion.

More Business & Finance »

This article has 0 comment, leave your comment.