IDB: Additional oil hedge to provide price certainty for three and a half years

IDB: Additional oil hedge to provide price certainty for three and a half years

NASSAU, BAHAMAS — The Bahamas is expected to benefit from crude oil price certainty for the next three and a half years following the execution of additional oil hedges with aid from the Inter-American Development Bank (IDB).

The bank said in a statement it has partnered with this nation on the execution of additional oil hedges to protect the government’s budget and better manage financial risks in uncertain times. The new oil hedges are linked to an IDB loan and will secure an affordable crude oil coverage solution during times of low prices for the government’s Bahamas Power and Light (BPL) electricity company. According to the IDB, the government will be able to implement better financial risk management over the next three and a half years, with a series of Asian Call Options purchased by the government from the bank, on approximately 7.2 million barrels of crude oil.

Daniela Carrera-Marquis, the IDB’s representative in The Bahamas, said: “These new hedges illustrate the IDB’s commitment to adopting innovative strategies to support its member countries, particularly in [the] present climate of high uncertainty provoked by the impacts of the COVID-19 pandemic. They also contribute to facilitate a well-managed energy hedging program that will provide lasting benefits for the country.

“Through these new transactions, the government of The Bahamas can further strengthen its risk management tools to protect its public finances and best support the people of the Bahamas.”

The agreement follows months of close work between the Ministry of Finance, BPL and the IDB in exploring the market for an Asian Call option style. This benefit to BPL fuel expenses is expected to have a long-lasting effect on the local economy.

Back in July, BPL and the IDB announced the execution of a fuel hedge facility that, at the time, was said to have set the fuel charge at 10.5 cents per kWh for 18 months, affording consumers the ability to save upwards of 30 percent on their monthly electricity bill.