JIS News

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  • Minister of Finance and Planning, Dr. the Hon. Peter Phillips, is defending the Government’s decision to purchase a hedge in the market against the risk of a sharp increase in the price of oil.
  • The Minister had announced on March 12, the imposition of an additional specific Special Consumption Tax (SCT) of $7 per litre to be imposed on petrol, in order to pay for the hedge.
  • Dr. Phillips said that hedges are expensive, and the Government will not be able to afford hedging 100 per cent of the country’s oil consumption.

Minister of Finance and Planning, Dr. the Hon. Peter Phillips, is defending the Government’s decision to purchase a hedge in the market against the risk of a sharp increase in the price of oil.

The Minister had announced on March 12, the imposition of an additional specific Special Consumption Tax (SCT) of $7 per litre to be imposed on petrol, in order to pay for the hedge.

“As I explained, the hedge is an insurance policy for the country and for the consumer against the prospect of a possible sharp upward movement in the price of oil.

Should oil move from its present value of a little less than US$50 per barrel to say US$80 per barrel, it would have an immediate effect of about US$500 million on the balance of payment,” Dr. Phillips said.

“We would be called on to spend more as a country, and that in turn would put enormous pressure on our foreign exchange needs and exchange rates and would threaten a lot of the hard work and stability that we have now achieved,” he explained.

The Minister  was speaking at a press briefing, held at the Ministry of Finance and Planning, Heroes Circle, in Kingston,  on  March 13.

Dr. Phillips said that hedges are expensive, and the Government will not be able to afford hedging 100 per cent of the country’s oil consumption.

“Having paid the financial institution that offers hedging… were the price to move up from what you will call the strike price, that is the price at which you have purchased the hedge,  then what we would get for the premium that we are paying, is the difference for that half of the oil that we purchase, and we will be able to use it to cushion both the price at the pump, and our balance of payments,” he noted.

The Minister  urged marketing companies and individual retailers not to use the opportunity to change their margins to the disadvantage of the public and the economy.

“We are urging retailers (and) marketing companies not to see this as an opportunity to change their margins to the disadvantage of the public. We believe in free market and competition, but I have no doubt that some, even outside of this, have been adjusting margins in ways that are to the detriment of the public,” Dr. Phillips said.

The proposed revenue measure is expected to yield some $6.4 billion and it is to become effective March 18, 2015.