Enemalta 'wasn't prepared' for hedging, says Roderick Chalmers

Enemalta could not have embarked on a fuel hedging strategy since it lacked a proper management infrastructure focusing on hedging, according to a former chairman of the fuel procurement advisory committee (FPAC).

Addressing the Public Accounts Committee scrutinising the Auditor General’s report on fuel procurement by Enemalta, Roderick Chalmers said Enemalta – in 2005 – should have focused on a proper strategy for product pricing rather than hedging.

He was reacting to criticism raised by a former FPAC chairman, Joe Falzon, who said Enemalta could have saved €2 million in costs if Enemalta made use of hedging.

“Enemalta should be looking at a proper strategy for product pricing and not at hedging. It is very easy to talk about hedging but without the proper infrastructure and expertise it is risky,” Chalmers said.

He said he had serious doubts on the financial and management infrastructure of the corporation to be able to carry out sophisticated hedging.

Chalmers was appointed chairman of the FPAC by then Infrastructure Minister Austin Gatt in 2005. Prompted by PAC chairman Jason Azzopardi, Chalmers said he never found any difficulty in meeting Gatt – comments that contrasted with his predecessor’s, Joe Falzon, who said Gatt only met him at the PN club in Santa Venera.

“He was very accessible in the sense that I would pick up the phone, call his personal assistant and we would set up a meeting,” Chalmers said.

He explained that at the time, Gatt was being recommended to embark on a hedging strategy, something which Chalmers advised against.

“It’s very easy to look back and say Enemalta could have saved millions in hedging, but that only happens with hindsight. At a time when the price of crude oil was volatile, Enemalta could not shoulder it.”

Chalmers was in favour of a ‘user pay policy’, and while the price of the commodity shot up by 250% for the buyer (Enemalta) the consumer only absorbed 17% of the cost.

Chalmers said Falzon had been “a bit sore” that the committee had expanded: “He was very insistent that the board of directors should implement his recommendation. I understood his sensitivity to the subject, but it was not my role to influence Enemalta in that sense.”

He went on to add that a hedging policy would have only worked properly if Enemalta implemented a users pay policy.

“But Enemalta was not equipped to guess the market on such a long term,” he insisted.

According to Chalmers, the Auditor General’s report “fell into the trap of looking back” when it came to its criticism regarding Enemalta’s reluctance of adopting a hedging policy.