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Hedging won’t protect Ghanaians from fuel price hikes – Hosi

Sep 01
14:09 2014

The government’s decision to introduce hedging against rising oil prices will not protect Ghanaians from fuel price hikes, the Chief Executive of the Chamber of Bulk Oil Distributors Senyo Hosi has said.

During the period of the hedging arrangement, the price of crude oil will be pegged at a particular figure over a period of time so that any price change during the time frame of the hedging would not be transferred to the consumer.

According to Mr. Hosi, the current price of petroleum products in Ghana is not determined by the world market price of oil but by the depreciation of the cedi against major trading currencies.

“The increment we have experienced mostly has not had much to do with the international price, but has more to do with forex. If you can develop a solution for that, then that is fantastic, but if they are not getting a solution for this core problem, which is the fx, then you can’t,” he stated.

The government will from September 1, 2014 begin quarterly hedging as a measure to avoid huge debts accumulating from subsidizing price differentials on petroleum products.

Government has explained that the hedging is aimed at protecting Ghanaians from price hikes when it reviews prices of petroleum.

But speaking to Citi News, Mr. Hosi said that since the world market price of oil has been stable in 2014, the government must tackle the depreciation of the Cedi  to achieve its hedging objectives.

“Fact is hedging the international market price is much simpler, less expensive and that will be possible. That is not the core of the problem we’ve had this year, to some extent, prices have been stable or a bit more a downward trend.  The key factor driving prices up, or the variables driving prices up, has been the fx  and if that can be hedged, then government objectives can be met.”

Meanwhile  the Director of Research at the African Centre for Energy Policy (ACEP) John Peter Amewu is asking the government to ensure its decision will not negatively affect the economy.

“You undertake hedging without a very accurate planning, it can affect the economic outlook. Again,  it is critical to realize that hedging does not reduce the volatility of oil prices at all. When you even hedge and you still introduce an element of subsidy, that even worsens the problem,” Mr. Amewu said.

Analysis

Businesses that need to buy significant quantities of crude oil hedge against rising crude oil price by taking up a position in the crude oil future.

For the government of Ghana to implement the  quarterly hedge, it must purchase enough crude oil to cover the quantity of crude oil required by the business operator.

The government currently owes the Bulk Oil Distribution Companies (BDCs) GH¢1.3 billion.

Its failure to pay the debts owed the BDCs led to a recent shortage of petrol in major cities and towns across the country.

 Source; citifmonline.com

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