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Say It Loud



TSATSU TSIKATA

Author:
GEORGE YEBOAH
Date:
2007-11-12 08:09:30


Can we really blame this guy for causing so much havoc? Now this?

What exactly did he do that was so repugnant that the current TOR outfit seeks to do avoid this time around?

It seems this man has been vilified.

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Government is exploring the possibilities of hedging crude oil prices, as part of measures to minimize the impact of the risk of exposure to world crude oil prices on the economy.

With the spate of rising international crude oil prices amidst speculations that the price would cross the all time US$100 per barrel mark before the close of the year, government thinks it is time to explore the grey area which is extensively harnessed by countries in Europe and Asia, and the US.

At a roundtable discussion in Accra supported by Standard Chartered Bank (Stanchart) on the topic, "Why Derivatives are the Next Step in the development of the Financial Markets in Ghana," stakeholders drawn from government, opposition, private financial and business sectors agreed to put in all necessary structures and systems to support the development of the derivatives market in Ghana.

Hedging is a financial instrument that can be used by government or the private sector to minimize the risk of exposure to commodity prices, equity prices, interest rates, and exchange rates.

In his address, the Minister of Finance and Economic Planning, Kwadwo Baah-Wiredu noted that the outlook for the economy remains positive, considering its resilience to the recent energy shocks, buoyant commodity sector and GDP growth set to hit the budget target of 6.5 percent, except for the exposure to the soaring crude oil prices.

The surge in the crude oil prices is expected to continue, as OPEC has projected decline in production, to be caused by falling output in Mexico and Brazil, the geo-political tension between Turkey and the Kurds and, US sanctions against Iran.

It has also projected demand for crude oil to increase by 100,000 barrels per day in the fourth quarter, due to stock piling for the winter season.

At its last review last week, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) increased the prime rate to 13.5 percent after maintaining it at 12.5 for three consecutive times, the reason being the threat the crude oil prices pose to domestic price levels.

"With the gloomy overhang, the time cannot be riper for Ghana to begin exploring hedging crude oil prices, which I believe when well managed, would accrue tremendous gains to consolidate micro and macroeconomic stability," Mr. Baah-Wiredu said.

The CEO of Tema Oil Refinery (TOR), Dr. K. K. Sarpong, outlined the areas where hedging is needed at TOR as interest rates, foreign exchange transactions and crude oil prices.

"TOR spends at least US$100 million monthly on crude oil purchase, where are we going to get that kind of money from," Dr. Sarpong asked, indicating the need for hedging.

He said the company has not hedged because of its Board's knowledge of distasteful experiences at the Ghana National Petroleum Corporation (GNPC) and Anglogold Ashanti (formerly Ashanti Gold Fields).

In 1998, Anglogold Ashanti hedged 600 ounces of its 1.5 million annual production for 20 years, betting that the price of gold will continue to fall over this period. It turned sour as gold prices rather picked up. Presently, Anglogold gets US$615 for each ounce of gold, being the average of hedge and unhedged price while the market price stands atUS$850.

Amit Juneja, a Senior Manager on the Commodity Marketjng Desk of Stanchart, Singapore explained that hedging is a risk but depending on the way it is managed, it can be very useful against volatility.

He cited a case of Sri Lanka, in June last year when the government initially resisted but upon understanding of the market operations through competent advice, decided to hedge gas oil prices through its National Oil Company, when it was by then quoted at US$60 per barrel. For him, the Ashanti Gold instrument was not managed well enough.

"Once you ascertain that you have an exposure which is linked to international prices, hedging is worth considering. However, it requires harnessing of the appropriate knowledge, competence and expertise to manage properly against the downside risk," he said.

Source: B&FT

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