Tuesday, February 3, 2009

Hedging Mess Could Exceed Rs10 Billion

If oil prices go where they seem to be going: $20 for a barrel or less. How did I get that huge number which is as big as our average capital budget -- announced but not actually spent -- of the past few bean-counting years? Well, I started by adding the Rs5.47 billion expected loss at MK with the Rs2.9 billion one at the State Trading Corporation (STC). That should give you Rs8.37 billion, right? Then I grossed up MK's loss by one third which is by about how much it should grow to if the distance I am expecting oil to travel over the next little while is indeed covered. So the number I get is Rs10.2 billion.

This is a conservative estimate because I haven't grossed up the STC loss. By the way, I am not buying that part -- there are other parts I'm not buying either -- of the last press conference of the PM that his finance minister didn't know about the hedging mess. Are you?
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4 comments:

  1. Anonymous05 February, 2009 09:46

    Am a student, i don't understand how can a hedging be done for a period of 2 years ! Even though the price of oil barrel keeps on rising, hedging could have be done for a period of 1 year or less. What is the reason behind the 2 years hedging ??

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  2. Sanjay Jagatsingh05 February, 2009 13:41

    Technically speaking you can hedge for any period of length provided the other party agrees.

    In fact many airlines hedge out over more than one year. Cathay Pacific for example as at Dec 31 2007 (as per its Annual Report) had hedged 30% of its anticipated fuel consumption for 2008 and 22% of the corresponding estimate for 2009. Southwest Airlines is also another good example.

    You may wish to check out the following interview I gave a couple of weeks ago on this topic: http://www.defimedia.info/articles/5816/1/Sanjay-Jagatsingh-analyste-financier---Air-Mauritius-a-fait-de-la-speculation-/Page1.html

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  3. akagugo14 December, 2010 16:24

    Given his track record, this guy may have had a lot more influence than anybody else in the making of the mess...

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  4. Sanjay Jagatsingh14 June, 2017 16:06

    So we lost Rs11bn on these two transactions. Heard the mentor minister mention this. Should there be a prize for the government who sinks Mauritius the most?

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