26 promotion of price competition. Assistance to consumers includes price discounts on petroleum products, cash transfers, and other forms of social protection.

# **5.1 Efforts to lower costs of supply**

# **_Hedging_**

Fuel price hedging has been widely used by airlines and other companies. Predictably, timing has been the most important determinant of the success of hedging strategies (Bacon and Kojima 2008, chapter 5). As world oil prices began to rise again, the Ghanaian cabinet in March 2010 approved a Commodity Price Risk Management Policy, and the government began hedging gasoline and diesel. This strategy has met with success. Sizable hedging gains in the first half of 2011 paid for fuel subsidies through July, and in 2012 Ghana hedged petroleum products on a quarterly basis ( _Ghanaian Times_ 2010 and 2012; IMF 2012b).

In 2008 and 2009, companies in other parts of the world reported large losses after previously soaring oil prices rapidly fell in late 2008 and into 2009. To lower costs, many companies chose options that provided some upside if oil prices remained high but did not protect against a price collapse. Airlines in China, Malaysia, Pakistan, the Philippines, and Vietnam were among those reporting hedging losses, in some cases amounting to US$1 billion. The large losses invited governments to raise questions, investigate the hedging contracts signed, and even imprison executives for allegedly acting irresponsibly and causing losses (Market News International 2009; Dow Jones 2010b; _South China Morning Post_ 2011; Platts 2009b; Plus News Pakistan 2010; _Philippine Star_ 2009; Platts 2010).

Oil companies have also suffered losses. Arguably one of the most politicized turns of events occurred in Sri Lanka, when the hedging strategy of state-owned Ceylon Petroleum Corporation (CPC) turned sour in 2008. CPC entered into a series of contracts to hedge a portion of its oil imports beginning in 2007, increasing the amount hedged over time to about one-third of oil imports. The other oil marketer in the country, Lanka IOC, also hedged. As long as oil prices were rising, hedging was advantageous, but hedging proved to be extremely costly once oil prices began to crash in the last few months of 2008. The perception that the hedging deals were unfairly structured and that the public was being asked to pay for the hedging losses through higher retail prices and not benefiting from falling oil prices rapidly gained wide acceptance, and petitions to that effect were filed. The cabinet appointed a risk management committee to review all hedging contracts and to minimize the losses in November 2008. The supreme court ordered a temporary suspension of the CPC chairman and payments to the banks until two petitions, alleging fraud and corruption in the hedging deals, had been dealt with. In the end, Sri Lanka’s treasury was exposed to about US$464 million in claims from three foreign and two local banks (Kojima 2009; Reuters 2011a).

# **_Price discounts for fuel imports and bulk procurement_**

Some governments and national oil companies have negotiated price discounts with governments and national oil companies in oil-producing countries. Through PetroCaribe, which claims 18 members and 12 joint ventures, República Bolivariana de Venezuela provides petroleum products under concessionary terms to countries in Central America and the Caribbean. In October 2011, PetroCaribe reported delivering 92,000 bpd of crude oil and petroleum products to its members (PetroCaribe 2011 and 2012). State-owned Bangladesh Petroleum Corporation negotiated favorable payment terms for fuel oil with Malaysia’s national