National Petroleum Authority, Ghana

The National Petroleum Authority (NPA) is leading a group of stakeholders in the oil industry to develop a national price-risk management (hedging policy for the country). The policy which is in its advanced stage of preparation should be ready for implementation by the end of December 2009. The Acting Chief Executive of the NPA, Alex Mould disclosed this shortly after the Platts conference on managing risks in the oil and energy sectors which was held in London in mid November 2009. Platts is the world’s leading provider of information on energy and metals with the aim of driving transparency and help drive market efficiency and liquidity. Platts also provides the highest quality and relevant news and price assessments of petroleum products.
The focus of the conference was timely considering the volatility in the oil sector, economies with exposure to oil prices have been forced radically to reassess previously well established processes in managing the rise and fall of prices.
According to the former banker, the hedging policy has become crucial because petroleum price must be managed to protect consumers against “stress levels” as experienced in 2008 where price levels stayed above the USD100/bbl level for the greater part of the first nine months of the year and peaked around USD147/bbl in May 2008. He cited the critical role petroleum plays in the country’s economy and said having a policy to manage prices of petroleum would be crucial for planning and managing business enterprises at the micro level and the economy at the macro level. The idea of hedging as a risk management tool began years ago but had never been implemented simply because there was no policy in place that met the approval of the stakeholders in the industry.
The hedging policy, which will define the strategy and tactical imperatives, will focus on (i) the executing party; (ii) the price-risk management instruments and tools, (iii) the time frame (tenor) of each execution strategy; (iv) the execution strategy (v) the monitoring and controls; and (vi) reporting (vii) appropriate approval levels. Such a policy would also ensure a smoothening out of prices throughout the year and will be benchmarked against other risk management tools to effectively measure its performance over the year.
Hedging in the past has been a no-go arrear in the history of the country because it has been seen by many as a speculative endeavor and that hedging strategies could go wrong. With the decision to institute an effective hedge policy, consumers can be assured of a protection when prices of petroleum products in the international markets rise, and at the same time benefit from a fall in petroleum product prices.
Mr. Mould lauded Platts for the initiative in providing a forum where oil, energy and the minerals industry participants could network and discuss strategies and useful tools in managing price volatility.