Tue | Sep 19, 2017

'Oil Hedge Money Down The Tube'

Published:Friday | January 22, 2016 | 1:00 AMDaraine Luton

Financial secretary Devon Rowe yesterday resisted suggestions that the Government was ill-advised when it purchased a hedge to protect against increases in oil prices, a venture which has thus far "gone down the tube", according to Audley Shaw.

Shaw, member of parliament for North East Manchester, who chaired the Public Administration and Appropriations Committee (PAAC) of Parliament meeting, at which the first supplementary estimates were considered, said "it would appear that somewhere along the line the Government of Jamaica was ill-advised".

He said the Government needs to realign the basis of its decision making on hedges going forward as a result of the current experience.

While Rowe disagreed that the ministry got bad advice, he accepted Shaw's suggestion about how to deal with hedges going forward.

"I would not add anything to what you have just said," Rowe responded.

The Jamaican Government bought coverage to the tune of US$27.9 million ($3.3 billion) for last year, which provided coverage of crude imports to September 2016. Under the insurance-type agreement, if the price of oil goes above US$66 per barrel, Jamaica would be guaranteed a payout from the fund managers.

"That hedge was purchased in order to provide some degree of protection. If we were badly advised, I would not say so," Rowe said.

"Looking back at what has occurred in 2015 is a different place to be than in 2014 when there was great uncertainty with oil prices," Rowe added.

Rowe said that in deciding the price at which to hedge, the finance ministry relied on various sources of information, such as the global markets, as well as information from a person who was employed to advise the ministry on the matter.

World oil prices have fallen below $27 dollars, the first time since 2003.