Government Chooses Provider of Fuel Hedging Contract

Government Chooses Provider of Fuel Hedging Contract

The oil and finance ministries have chosen a firm to sign fuel hedging contracts with the government, anonymous sources told Amwal Al Ghad.

The fuel hedging solution was proposed by the two ministries to prevent rising oil prices from affecting public finances.

The budget for FY 2018/19 was calculated using an average price of $67 per barrel as a benchmark.

The insurance contracts will help Egypt hedge against price increase above $73 for a barrel. Sources told Enterprise that oil prices are expected to stand at $70 per barrel by the end of 2018.

The contracts are currently being reviewed by the government’s legal advisor and will be signed in the next OPEC meeting, Enterprise’s source added. None of the sources revealed the name of the provider.

Seven firms submitted proposals to the Egyptian government, an anonymous source told Al Shorouk in June.

In late July, the Egyptian cabinet announced that the country will purchase insurance contracts from international financial institutions to hedge against fluctuating global oil prices.

Protecting state finances from the fluctuations of global oil prices has recently became one of the Egyptian government’s main concerns due to the recent rises in the markets.

The estimates of fuel subsidies as a percentage of GDP in fiscal year 2018/19 almost doubled to 2.1%, up from 1.2% due to the recent increases.

On the micro level, the two ministries will introduce a new automatic pricing mechanism by the end of this year to lessen the impact of crude prices on the Egyptian market, oil minister Tarek El Molla announced in June.

The mechanism will adjust the prices of most types of fuel to reflect changes in global oil prices, the value of the Egyptian pound, and the proportion of imported fuel in national consumption.

The IMF latest review endorsed the pricing technique, expecting it to lessen the impact global oil prices on Egyptian finances.


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