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Ecopetrol studying price hedge, fuel tax cut

 


 

By Argus

BOGOTA
Petroleumworld 05 14 2019

Colombia's state-controlled Ecopetrol is considering a number of hedging options to manage oil price risk and could engage the market later this year.

Ecopetrol recently updated its hedging policy in conjunction with the board of directors.

"We have a framework to engage if we see a business case for it," chief financial officer Jaime Caballero told analysts, adding that the focus is on risk management, not speculation or profit. "We are looking at a number of options."

As an integrated oil company, Ecopetrol already implements natural hedges, Caballero said.

Ecopetrol averaged $56.20/bl for its basket of heavy crude in the first quarter of 2019, down by 6.2pc from a year earlier, the company said in its earnings report late yesterday.

Ecopetrol chief executive Felipe Bayon said the company is studying the impact of a government plan to cut a value-added tax on gasoline and diesel to 5pc from 19pc. The measure is one of 349 articles in the 2018-22 National Development Plan (PND).

"We are waiting for presidential sanction and regulations to see what this implies for Ecopetrol's different business segments," Bayon said.

But the initial analysis could indirectly hurt the company, which pays the same 19pc VAT on purchases and sales.

"The implementation of the article could absorb a good part of the benefits of the financing law," said Caballero, referring to the tax breaks that Ecopetrol expects to receive under the government's separate fiscal reform package.

Julio Cesar Vera, president of Colombian consultancy Valjer Energia and former president of oil engineers' association Acipet, told Argus the fuel tax cut is equivalent to around 700 pesos ($0.21)/USG. But the article would transfer the differential to the producer, rather than the consumer, and scrap a fuel price stabilization fund which has a Ps14bn deficit.

"Lawsuits are coming. This article has defects in substance and process," he told Argus .

Alvaro Younes, president of oil distributors' association Fendispetrol, said the article is incoherent and does not alleviate the price burden for consumers. He urges the government to take a comprehensive approach and address the "capricious" manner in which the mines and energy ministry currently issues monthly fuel prices.

The finance ministry and the mines and energy ministry did not respond to requests for comment.


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