SOCAR hedging deals worth €67 million, AG says during PAC meeting
The hedging deals signed between the government and Azerbaijani state-owned company SOCAR were worth €67 million, Auditor General Anthony C Mifsud confirmed this evening.
Mr Mifsud was asked to state the net worth of the oil purchase agreements by PN MP Jason Azzopardi, who is chairing the Public Accounts Committee.
The Auditor General this evening officially tabled the NAO audit report - An analysis of Enemalta Corporation’s hedging activity during 2014 – which was drawn up on the insistence of the Opposition. The PN has blasted the way in which the agreements were concluded following “ministerial direction” by Health and Energy Minister Konrad Mizzi.
The NAO had flagged various shortcomings in Enemalta’s hedging practices in a report published in 2013 and to its dismay, these shortcomings have largely persisted, including the lack of a formally documented hedging policy against which Enemalta may set its strategic orientation.
Enemalta - and Enemed, which took over the company’s petroleum division last year - ended
up losing €14.1 million on the hedging of crude oil and fuel during 2014, although these were partly offset by €7.9 million in gains on currency exchange hedging.
Enemalta’s hedging was actually profitable for much of 2014, but the corporation was blindsided by a dramatic fall in international oil prices in the latter parts of the year. The corporation actually made a €3.1 million profit on crude oil hedging in the first nine months of the year, but significant losses between October and December led to an overall loss of €8.6 million.
As for unleaded petrol and diesel, a non-hedging policy had been reversed under the present government in 2013, in a bid to introduce a degree of price stability. While hedging led to a €1.6 million profit in the first eight months of the year, losses in the sub- sequent four months translated into an overall loss of €5.5 million during 2014. These losses were largely borne by Enemed, formed out of what had been Enemalta’s petroleum division before it was sold off to the government to settle tax arrears.
On the other hand, Enemalta fared much better when it came to currency hedging, which aims to address risks related to the fact that it trades and procures oil using US dollars whilst generating income in euros. It ended up gaining €5.5 million through hedging related to fuel oil and gasoil and a further €2.5 million on hedging with respect to unleaded petrol and diesel.
But the Auditor General flagged the lack of complete documentation of two hedging agreements - one on petrol and the other on diesel - reached with SOCAR in April 2014. These agreements allowed the price of petrol to drop by €0.02 per litre and the price of diesel to remain un- changed the following month - a move which had been heavily hyped by the government on the eve of a European Parliament election.
The documentation it saw failed to provide a comprehensive account of AFC’s sourcing of final approval and the subsequent placement of an order with SOCAR, while minutes of a Petroleum Procurement Committee meeting dated 3 April 2014 indicated that the deal was concluded following “ministerial direction.”
The NAO asked for various clarifications from the ministry and from Enemalta, but ultimately concluded that the documentation concerning the SOCAR deals was incomplete.
“Given the magnitude of the agreement reached with SOCAR Trading SA, this Office considers the lack of documentation as detracting from the process’ accountability and a shortcoming in terms of governance,” it maintained.