Mil­lions more!

Jamaica Gleaner - - FRONT PAGE - Jo­van John­son Staff Re­porter

Par­lia­ment to be asked to ap­prove new oil hedge

GOV­ER­NOR OF the Bank of Ja­maica (BOJ) Brian Wyn­ter and Fi­nan­cial Sec­re­tary Ever­ton Mc­Far­lane have come out de­fend­ing the costly ‘in­sur­ance’ Ja­maica has taken out against oil prices as the ex­pi­ra­tion date nears and a new one is be­ing pre­pared for Par­lia­ment’s ap­proval.

Hedg­ing is an in­vest­ment po­si­tion used to re­duce sub­stan­tial losses that could be in­curred based on ac­tual or per­ceived fluc­tu­at­ing developments.

Last year June, Ja­maica en­tered an ar­range­ment with Citibank, which cov­ers the pe­riod from June 2015 to De­cem­ber 2016, and for which the bank has been paid ap­prox­i­mately J$3.3 bil­lion (US$27.9 mil­lion) in pre­mi­ums. The ar­range­ment in­volved three con­tracts.

Un­der the ar­range­ment, Ja­maica would get a pay­out if oil prices ex­ceed US$66 per bar­rel. Up to yes­ter­day, the West Texas In­ter­me­di­ate crude rate used un­der the hedge put the lat­est oil prices at US$51.60 per bar­rel.

Mc­Far­lane told Par­lia­ment’s Pub­lic Ad­min­is­tra­tion and Ap­pro­pri­a­tions Com­mit­tee (PAAC) yes­ter­day WYN­TER that the Par­lia­ment would be ap­proached to ap­prove funds to ex­tend the hedge as no pro­vi­sion was made in the 2016-2017 Na­tional Bud­get, ap­proved in May.

“In the com­ing Sup­ple­men­tary Es­ti­mates, we are look­ing to find the re­sources so that we’re cov­ered a longer pe­riod of time,” he said. He added in a Gleaner in­ter­view later that “the de­tails as to the pe­riod to be cov­ered and the level of cov­er­age are to be fi­nalised in short or­der.”

He said the re­sources would come from bud­getary re­al­lo­ca­tions.

NUM­BER OF BAR­RELS DE­CLIN­ING

The BOJ Gov­er­nor also noted that with just two months to go un­der the last con­tract, the num­ber of bar­rels has been de­clin­ing. “We’re not cov­er­ing the full monthly amount now. This is the tail end of what was be­ing hedged over a year ago. It’s a lit­tle un­der 200,000 bar­rels per month, whereas when you’re cov­er­ing (fully), you’d be up there at about 700,000 or 800,000 bar­rels per month,” he said. Con­cerns had been raised that be­cause prices have re­mained low, Ja­maica was los­ing mil­lions un­der what some crit­ics held was an un­nec­es­sary hedge. PAAC mem­ber Franklyn Wit­ter, us­ing sim­i­lar con­cerns, ques­tioned whether the risks that gave rise to the hedge still ex­isted. “You have a pro­jec­tion over the medium term for oil to re­main within $52 per bar­rel, so given that pro­jec­tion, why do you think it would be im­por­tant to con­tinue with the hedge?” See full story on­line.

NOR­MAN GRINDLEY/CHIEF PHO­TOG­RA­PHER

Fire­fighter carry out cool­ing-down op­er­a­tions af­ter the ex­plo­sion on Jacques Av­enue in the Moun­tain View area of St An­drew on Sun­day.

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