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Phillips says Ja will continue hedging if oil prices increase sharply

Published:Thursday | February 11, 2016 | 2:00 AMEdmond Campbell
Dr Peter Phillips.

Finance and Planning Minister Dr Peter Phillips says Jamaica will continue to hedge against any sharp upward movement in the price of oil. He said any jump in the price of oil could have the effect of significantly impacting the country's balance of payments accounts and stymieing or reversing the country's growth prospects.

"We have financed a hedge which has protected us by insuring the country against any sharp increases in the price of oil, which thus far has generated substantial savings in the balance of payments accounts," Phillips said at an energy conference on Monday at The Jamaica Pegasus hotel in New Kingston.

COVERAGE AMOUNT

The Jamaican Government bought coverage amounting to 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 increases above US$66 per barrel, Jamaica would be guaranteed a payout from the fund managers.

He told stakeholders in the energy sector that with the declining price of oil, the Government took the opportunity to impose a cess in the use of fuel and to divert that cess into an energy stabilisation fund.

"We will continue to hedge to ensure that we do not suffer irreparable damage to the country's balance of payments accounts or stymie or reverse the country's economic growth dynamic because of any sharp upward movement in the price of oil," Phillips stressed.

"We consider spending US$27 million - to insure against sharp increases to purchase the hedge to ensure that we don't suffer a $600-million loss on our balance of payments accounts - to be money well spent."

Opposition Spokesman on Finance Audley Shaw had said it appeared that the Government of Jamaica was ill-advised on the oil hedge arrangement.

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

edmond.campbell@gleanerjm.com