Fuel hedging included in budget again to lower fuel expenses

MVR 216 million has been allocated in the proposed State budget for fuel hedging in a bid to decrease State expenditure on fuel.

Ministry of Finance said that important steps to facilitate this has been taken while an allocation for fuel hedging has been in the budget. They said that discussions on the matter are ongoing even at present. MVR 108 million needed for certain administrative costs has been included in this year's budget as well.

A fuel hedge contract is one entered into with the supplier where fuel is provided at a fixed or capped cost, sometimes via a commodity swap or option. This would minimize impact of market prices on the purchasing of fuel. In the instance that a fuel hedge contract is entered into, the government will have to buy fuel at the agreed price regardless of whether the market price of fuel increases or decreases.

The highest State expenditure at present is on fuel subsidies. This year, fuel subsidy is at MVR 1.3 billion. Even in the previous year, fuel subsidy was at MVR 1.9 million.

Government expenditure of subsidies is expected to reach MVR 11 billion this year. This is about MVR 1 billion higher than last year's figures.