Hedging has contributed to stability of Ghana’s economy in 2011 – Dr. Duffour
Dr Kwabena Duffour, the Minister of Finance and Economic Planning of Ghana has said that, the entire under-recovery of petroleum pricing for the year is estimated to be GH¢364.94 million based on the assumption of crude oil price of US$110.23 per barrel, therefore, the government has put in place a simple hedging mechanism to mitigate the impact of crude oil price fluctuations on crude oil receipts. In view of this, the hedging has contributed significantly to the stability of the economy in 2011.
Presenting the 2012 Budget Statement to Parliament yesterday, he said rising crude oil prices has meant that the government has had to subsidize ex-pump price of petroleum products to the tune of GH¢267.61 million as at September 30, 2011.
The call option is adopted to manage oil import prices whilst the put option is adopted to smoothen fluctuations in crude oil export receipts, Dr Duffour explained.
The commencement of crude oil production has created a new price risk exposure for government revenue and in order to protect the revenue, the scope of the hedging programme was expanded in May 2011 to include petroleum revenues, he revealed.
He explained that, the put option has been adopted under which Ghana has the option to sell crude oil at a price of US$107.00 per barrel and therefore presently, 100 percent of anticipated receipts of crude oil sales have been hedged to the end of 2011.
The Minister announced that the government hedging programme on petroleum has worked very well to reduce fluctuations in the oil export revenues and expenditures on imports.
He estimated that, the total revenue from crude oil sales in 2012 fiscal year is projected at GH¢1,239.82 million based on an estimated average oil price of US$90.00 per barrel and production of 90,000 barrels per day. This amount comprises royalty payments of GH¢236.87 million, income from government, Carried and Participating Interest of GH¢618.84 million, and corporate income tax of GH¢384.11 million.
As required by the Petroleum Revenue Management Act (PRMA), he said government wishes to submit to the House for consideration and approval a proposal for the Annual Budget Funding Amount (ABFA) for fiscal year 2012 to be set at 70 percent of the benchmark revenue, consistent with Section 18 of the PRMA.
In explaining this, Dr Duffour said that, transfer of oil revenue to the National Oil Company will amount to GH¢361.90 million and the benchmark revenue will amount to GH¢877.92 million, therefore the proposed 70 percent of the benchmark revenue determined as the Annual Budget Funding Amount will amount to GH¢614.55 million and transfer to the Ghana Petroleum funds will amount to GH¢263.28 million.
In line with Section 21(5) of the PRMA, the Annual Budget Funding Amount would be spent in the following four priority areas: Expenditure and amortization of loans for oil and gas infrastructure; Road and other infrastructure; Agricultural modernization; and Capacity building including oil and gas, he assured Parliamentarians.
By Pascal Kelvin Kudiabor