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Dr. Kwabena Duffuor
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The Institute for Fiscal Studies (IFS) has praised President Akufo-Addo’s government’s plan to hedge Ghana’s oil imports.

According to the Institute, founded by former Finance Minister, Dr. Kwabena Duffour, the move is “a step in the right direction, given that hedging provides an insurance to mitigate the adverse impact of oil price volatility.”

Speaking at a press conference yesterday in Accra, Prof. Newman Kwadwo Kusi said, “Ghana’s previous experience with hedging points to one key lesson: with a well-designed hedging programme, it is possible to protect the country against volatilities in commodity prices through the ‘call’ and ‘put’ options.”

He therefore, on behalf of the institute, urged the government to consider a comprehensive hedging programme that covers both oil imports and exports as well as interest rates on public debt.

Production Level

Currently, according to IFS’s statistics, Ghana produces nearly 200,000 barrels of oil per day.

Ghana’s share, it claims, has risen to nearly 20 percent of this total output, which it sells on the international market.

“Ghana is however, a net oil importer except last year when oil exports exceeded imports,” the Institute pointed out.


Prof. Kusi indicated that “without an oil hedging programme, the country stands to lose foreign exchange earnings from exports when oil price drops on the world market.

“Likewise, when oil price increases, the country suffers through increases in its oil import bill. Both scenarios are undesirable and can be mitigated by an effective hedging programme to ensure stability in fiscal management.”

Hedging is an insurance instrument used to buy protection against risks and not a gamble for futuristic gain. Hedging is not entirely new to Ghana’s fiscal management.

Inception Of Hedging

In March 2010, after the country had built capacity in commodity risk management in collaboration with one of the world’s reputable banks – Goldman Sachs – the government implemented a Commodity Risk Management Policy to help protect the economy from the volatilities in commodity prices.

In line with the policy, a National Risk Management Committee was established and charged with the responsibility of hedging Ghana’s oil imports and exports through “call” and “put” options, respectively.

Initially, the government hedged at a strike price of $82.50 per barrel on monthly imports of 1,000,000 barrels, IFS recounted.

In July 2011, this was increased to 2,000,000 barrels of imports per month at an average strike price of $115.00 per barrel, according to IFS.

Prof. Kusi told journalists, “The programme proved immensely successful, and by the end of 2011, the scope of the hedging had been expanded to provide a 100 percent cover for Ghana’s oil imports.”

The commencement of oil production from the Jubilee Field, he narrated, created a new price risk exposure for the country.

According to him, “To protect the oil revenue to enable it support fiscal stability, the scope of the hedging programme was expanded to include revenues from oil exports through the ‘put’ option.

“Up to the end of 2011 fiscal year, 100% of the anticipated receipts from crude oil exports were also fully hedged,” adding that “The government was also in the process of implementing interest rate hedging programme which was to begin in 2012 to help stabilize interest costs arising from the external credit it had secured, including the China Development Bank US$3.0 billion loan.”

Program Abandoned

He lamented, “As of today, Ghana has no hedging programme in place. The country’s hedging programme was abandoned in 2013, exposing its foreign exchange resources to the vagaries of an unpredictable and often harsh international commodities market.”

Foreign Partners Gain

“Meanwhile, Ghana’s Jubilee Partners – Kosmos, Anadarko and Tullow Oil – have insulated themselves from oil price volatilities through active hedging.

“So, while Ghana’s crude oil sold for an average price of US$46.13 per barrel on the world market in 2016, Kosmos and Tullow raked in US$73.60 and US$61.70 per barrel, respectively.”

Source: Daily Guide

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