Enemalta lost €45 million on hedging in 2009

The newly released statements of Enemalta Corporation have revealed that the national energy company registered €45 million in hedging losses in 2009, after having raised its energy tariffs in late 2008.

The hiked tariffs remain a source of controversy that has marked Lawrence Gonzi's legislature, after Brent crude oil rose to a historical record high of $146 per barrel in July 2008.

But the 2009 financial statements, tabled in parliament on Wednesday evening by finance minister Tonio Fenech, shows the corporation lost €45 million on its hedging agreement in 2009. The year before, it registered a €3 million gain on hedging.

According to the directors' report, in 2009 Enemalta's hedging strategy was a zero-cost collar structure before changing this in 2010 by buying fuel at a fixed $81 per barrel.

A zero cost collar strategy works by setting a maximum and minimum price range for the purchase of fuel: if the spot price goes higher than the price range, then the buyer must pay that difference.

So in 2010, the corporation Enemalta hedged all its fuel exposure at a fixed €81 rate, giving it an element of stability in devising its tariff model and protecting it from any increase in crude oil prices. "Enemalta deems swap structures are an attractive alternative to zero cost collars."

Indeed, in the first four months of 2011 Enemalta recorded a hedging gain of 26 million US dollars. Even when oil prices exceeded the $126 mark due to political instability in the Middle East and North Africa, by the end of April 2011 Enemalta's oil hedging portfolio was in-the-money by €44.5 million.

In the money does not necessarily mean Enemalta made a profit: it means the strike price at which it purchased the fuel was less than its actual cost, so the option was considered worth exercising, or in the money.

Overall, Enemalta Corporation registered a loss after tax of €45,213,000 for the 12-month period sending 31 December 2009. In the 15-month period ending 31 December 2009, it lost €46.6 million.

Enemalta's electricity division reported an operating loss of €29.4 million, an increase of €9.2 million over the previous year. Its petroleum division reported profits of €511,000, after losing €11.9 million in 2008 mainly due to the impairment of land and buildings of €7 million.

The gas division remained loss-making at €2.38 million losses in 2009, compared to €5.4 million in 2008. The lower loss was the result of improved purchasing costs of liquefied petroleum gas. The gas division was later privatised.

Bank lending to Enemalta also grew from €448 million in 2009 to €579 million according to the Auditor General's annual report.