The Inter-American Development Bank (IDB) says it has partnered with The Bahamas for a new oil-hedging instrument to protect government budget and better manage financial risks in uncertain times.
The Washington-based financial institution on Wednesday said that the agreement will secure an affordable crude oil coverage solution during times of low prices for the Government’s Bahamas Power and Light electricity company.
This is the first time the bank and the Bahamas are using such an instrument.
“It will better position the country against abrupt oil price movements and offers protection against increases in electricity costs over the next 18 months,” the IDB said.
“This hedge illustrates the IDB’s commitment to adopting innovative strategies to support its member countries, particularly in present climate of high uncertainty provoked by the impacts of the COVID-19 pandemic,” said Daniela Carrera-Marquis, the IDB’s Representative in The Bahamas.
“Through this transaction, 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,” she added.
The Bahamas Deputy Prime Minister Peter Turnquest said this fuel hedge will facilitate the creation of a well-managed energy hedging programme that will provide long lasting benefits for the archipelagic nation.
The programme is expected to positively counter any loss revenues during the pandemic, the IDB said.
“In recent months, crude oil prices have dropped to historic lows, so it is a sound prudent decision to take advantage of this opportunity,” said Turnquest. ‘’This partnership with the IDB will allow the government to better manage external influences that furthers threaten quality of life in The Bahamas during this period.”
The IDB said the agreement follows months of close work between the Bahamas Ministry of Finance, BPL and the IDB
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, as it will provide crude oil price certainly for the next 18 months,” the IDB said.