The government''s oil price hedging plan is reportedly in doldrums as most of the international commercial banks, with the exception of Deutsche Bank and BNP Paribas, have shown no interest in becoming consultants as offered by Finance Ministry, sources in Finance Ministry told Business Recorder.
The Economic Co-ordination Committee (ECC) of the Cabinet, which is scheduled to meet on Tuesday, may decide about the future of the proposal. Initially, this proposal was discussed by the ECC in its meeting on June 16, 2009 wherein it was decided that Finance Ministry should hire consultants for formulation of a strategy with appropriate recommendations for oil price hedging. The consultants would then make a presentation to the ECC in its next meeting. And, the Petroleum Ministry was required to extend requisite support in this regard.
In the light of the ECC decision, reputable international commercial banks, namely Barclays Bank plc, BNP Paribas, Union Bank of Switzerland (UBS), HSBC Bank, Standard Chartered Bank, Royal Bank of Scotland (RBS), Deutsche Bank, J. P Morgan, Goldman Sachs, Citibank and Dubai Islamic Bank, were approached to send their proposals to act as consultants to assist the government in formulating the hedging strategy and evaluating proposals on oil hedging.
Sources said that only two banks--Deutsche Bank and BNP Paribas--submitted proposals, while most of the other prime international banks prefer to participate in the actual oil hedge transaction. After a series of negotiations, on August 12, 2009, Deutsche Bank was appointed as consultant for a period of one year in the light of ECC decision.
Subsequently, in compliance with the earlier ECC decision, Finance Ministry, on August 17, 2009, submitted another summary to the ECC for a presentation by Deutsche Bank on oil hedge strategy. The ECC, after hearing the presentation of Deutsche Bank, decided that additional proposals on the subject should be presented before the ECC for selection of consultants on competitive basis.
Sources said that Finance Ministry, keeping in view the ECC decision of August 18, 2009, again invited a number of international banks to offer their services to act as consultant to GoP on oil hedge initiative, but none of them showed any interest in advisory services. "Finance Division feels that further presentations by international banks on oil price hedging will not be possible," sources added.