Dec 12, 2018 Last Updated 10:09 AM, Dec 6, 2018

The Minister of Finance & the Public Service

The Hon. Nigel Clarke, DPhil., MP, is Jamaica's Minister of Finance and the Public Service and is Member of Parliament for St Andrew Northwestern. ...

Minister without Portfolio in the Ministry of Finance and the Public Service

The Honourable Fayval Williams, MP, is Minister without Portfolio in the Ministry of Finance and the Public Service. Minister Williams is a Chartered Financial Analyst (CFA), and h...

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Statement by The Hon. Nigel Clarke, DPhil, MP Minister of Finance and the Public Service - Oil Hedge Facts and Figures

Statements have been made to the media and speeches made in parliament over the past few months, by various Opposition spokespersons, that contain inaccurate and incomplete information, and in some cases misinformation, in an apparent attempt to create a narrative that is not supported by the facts.

These have been followed by statements this week by Opposition spokesperson on energy, Mr. Phillip Paulwell.

The facts surrounding the 2015 increase in the Specific SCT on petrol, the Energy Stabilization Fund promised in 2015 and the 2015/16 Oil hedge are as follows:

  • In his March 2015 budget presentation the then Minister of Finance Dr. Peter Phillips announced an increase in the Specific SCT on petrol of $7 per litre, which was projected to raise $6.4 billion in additional tax revenue.
  • In his closing budget presentation again in March 2015, Dr. Phillips said "it is the Government's intention to establish an Energy Stabilization Fund to receive and manage the resources generated from the oil hedge programme. Mr. Speaker, these resources include the proceeds from a portion of the additional $7 per litre of specific SCT – specifically $5 per litre – as well as any future payment from the hedge contract should future oil price movements lead to such payments."1
  • In June 2015 the Portia Simpson Miller administration executed hedging contracts covering six million barrels of oil and in July 2015 the Portia Simpson Miller administration executed an additional hedging contract covering an additional two million barrels. These contracts, taken together, covered an 18-month period from June 2015 to December 2016, at a total cost to Jamaica of $3.3 billion.
  • Furthermore, the Portia Simpson Miller administration only used approximately 52% of the funds raised from the 2015 increase in the Specific SCT on oil hedging (equivalent to $3.6 per litre out of the $7 per litre increase that was levied). The remaining funds raised by the increase in the Specific SCT went into the Consolidated Fund and were used by the Portia Simpson Miller administration on other expenditure. Therefore, the undertaking of Dr. Phillips, in his 2015 closing budget presentation, to use "$5 per litre" of the "$7 per litre" increase in the Specific SCT on an oil hedge program did not materialize.
  • Jamaica consumed approximately 24 million barrels of oil over the 18 month period covered by the hedge2. The hedge, therefore, only covered at most 33% of Jamaica's oil imports, over the period of the hedge.
  • In the Ninth IMF Review under the Extended Fund Facility, the IMF, in reference to the oil hedges, warned that given World Economic Outlook oil price forecasts, which were on a downward trajectory, "the options are unlikely to be triggered".3
  • After the spending of $3.3 billion on oil hedges by the Portia Simpson Miller administration, none of the options were triggered and every one of the hedging contracts expired worthless, with zero payout to Jamaica, as prices did not rise above the strike prices during the period covered by hedges.
  • The Energy Stabilization Fund was never established by the Portia Simpson Miller administration.
  • At the time that the hedge contracts were first executed Jamaica's Net International Reserves, which are a necessary buffer to afford, among other things, oil imports at higher prices, were approximately US$2.1 billion. As at the end of June 2018, Jamaica's Net International Reserves position is much improved at US$3.1 billion.
  • In November 2016, prior to the December expiration of the last hedging contract, Jamaica entered into a US$1.6 billion precautionary stand-by arrangement with the IMF that provides significant balance of payment support in the event of an external shock during the three years to October 2019, including any oil price shocks.
  • The Government of Jamaica would love to be in a position to roll back more taxes for all Jamaicans. Indeed for the first time in several years there was no new taxation in the last budget.
  • However, given the economic situation that Jamaica still faces, where we are (i) working down Jamaica's high debt burden, which still poses a significant threat, (ii) addressing longstanding deficiencies with increased capital expenditure on roads, irrigation and security (which has increased 80% since 2015/16) and (iii) increasing spending on school feeding, PATH and other social assistance (which has already been increased by more than 50% since 2015/2016), it is premature to discuss these kinds of tax reductions.

 

Communication & Public Relations Branch
Ministry of Finance and the Public Service
30 National Heroes Circle
Kingston 4
Tel: (876) 932-4656/4655
Contact: Elaine Oxamendi Vicet
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 


1 http://jis.gov.jm/media/HMF-Final-Closinig-Presentation-2015-_2_.pdf
2 Jamaica imported approximately 16 million barrels of oil for the 12 months of 2015 and 16 million barrels for the 12 months of 2016. Source: MSET 
3 https://www.imf.org/~/media/Websites/IMF/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15270.ashx

 

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