Patriot 03

The Patriot on Sunday | www.thepatriot.co.bw | December 02, 2012
| DECEMBER 02, 2012 | VOLUME 4 | ISSUE 4 P8.00
Opposition
musical
chairs
swinging
again
Youth
advised
to look
beyond
Gaborone
for plots
New
docudrama
coming
on Btv
Kutlwano
qualifies
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Clubs
Page 02 Page 07 Page 19
Page 32
BPC loses P1 billion in hedge funds
EPHRAIM KEORENG
The Botswana Power
Corporation (BPC) has
lost more than a billion
Pula (P1billion) in hedge
accounting, an undertaking
which has badly affected the
electricity provider’s cash
flow. The loss, in accounting
parlance “held for trading
derivatives not designated in
hedge accounting relationships
stood at P1, 010 001 000 in
2010”, reads a BPC document.
Investigations by The Patriot
on Sunday reveal that since
2009, the BPC has made
flippant efforts to reduce the
debt which accrued as a result
of a loan from Industrial and
Commercial Bank of China
(ICBC) to facilitate the hedge
account.
In what is likely to cause
alarm, the loss making BPC, it
has been established, through
impeccable sources that the
BPC financial statements
which are expected to be
incorporated into the utility
giant’s 2010/2011 annual
report show that the debt is in
the region of P1.1 billion.
The BPC’s 2009/2010 annual
report details this financial
challenge: “…to reduce the
risk of changing interest rates
and foreign currency exchange
rates on the loan from
Industrial and Commercial
Bank of China (ICBC) , the
corporation has entered into
a pay fixed interest rates. The
nature of the place is that it
effectively converts the US$825
million loans into a notional
basket currency which
historical trends and forecasts
have indicated to be highly
correlated to the Botswana
Pula.
“The resultant cash flows
translate to an effective interest
of 10.8 per cent. As at March
31 2010, the fair valuation
results indicated a significant
liability of P1 010 001 000
which was among others
influenced by the fact that the
envisaged strengthening of the
United States Dollar currency
against other currencies as well
as a rise in USD Libor had not
occurred.”
Further, the loan drawdown
plan, states the report, as
originally informed by a
forecast EPC contractor’s
milestone payment schedule,
was not fully executed to
remain so in the future.
The BPC as a parastatal is
funded by public funds. In his
budget speech for the period
2011/2012 finance minister
Kenneth Matambo said
government allocated BPC
P1.3 billion, which is almost
the same amount as the utility
company’s hedge fund loss.
Meanwhile the BPC annual
report states that to reduce “the
fair value risk changing interest
rates and foreign currency
exchange rates on the loan
from ICBC, the corporation
has entered into a pay fixed
interest rates and receive
floating interest rate. The swap
matures every six months
starting on 15 January 2010.”
Explaining the process, the
report notes that the swap,
is made up of a basket of
notional currency on which
interest is calculated on the
hedged amount based on the
six month US dollar plus 1.6
per cent.
“This amount is received in
US dollars and is calculated
based on the same rate charged
on the loan from ICBC.”
The report further reveals
that the P1billion was pegged
in US dollars for Standard
Bank plc. being the hedging
bank. The notional hedged
amount in 2010 was P3 billion
and the loan draw down for
the same year was P1.3 billion,
thus the cash that the BPC lost.
On the other hand, the overhedged
amount, according to
the report was P1.6 billion in
BPC Chief Execuitve Officer, Jacob Raleru
2010.
Speaking on condition of
anonymity, an accountant
KEITEBE KGOSIKEBATHO
Assistant Minister of
Finance and
Development Planning
Vincent Seretse who is facing
charges of corruption will
not resign his ministerial
post because he has not been
proved guilty.
The Minister for
Presidential Affairs and Public
Administration Mokgweetsi
reveals that the idea to
implement a hedge account is
aimed at reducing “the earning
Masisi told Parliament that
Section 10(2) (a) of the
|Constitution provided that
every person who charged
with a criminal offence shall
be presumed to be innocent
until he or she is proved or
has pleaded guilty, hence this
privilege also extend to cabinet
ministers and members of
parliament.
Responding to criticism
of the BDP government by
volatility of the organization
involved and to comply with
the matching of the principle”.
MP Dumelang Saleshando
before he dropped as leader
of the opposition, Masisi
said the former Leader of the
Opposition has no authority to
pronounce, either directly or
by innuendo, on anyone’s guilt,
much less sentence them by
deciding their fate.
“It is most disappointing
that the Honourable former
Leader of the Opposition
made his statement only a day
She explained: “The hedge
relationship has to be highly
effective in order to qualify
Seretse not resigning from cabinet
after a brief appearance before
the courts by one Assistant
Minister. The trial has not even
begun, and I can only wonder
whether his statement is an
attempt to influence members
of the public or the judiciary
itself,” said Masisi.
Masisi however
acknowledged that there had
been instances where, in the
personal judgment of the
affected individual and or the
for hedge accounting. High
monitoring costs incurred
from closely and constant
monitoring. There are high
documentation costs as
substantive documentations
are required to support the
hedge.”
Normally financial
institutions use this derivative
financial instruments to “hedge
their exposure to different
risks, for example interest
rate risk, foreign exchange
risk, commodity risk,” says a
statement in Wikipedia.
“The aim of hedge
accounting is to provide an
offset to the mark-to-market
movement of the derivative
in the profit and loss account.
… For a cash flow hedge
some of the derivative
volatility into a separate
component of the entity’s
equity called the cash flow
hedge reserve…To achieve
hedge accounting requires a
large amount of compliance
work involving documenting
the hedge relationship and
both prospectively and
retrospectively proving that the
hedge relationship is effective,
reads the online dictionary.
Asked to comment the BPC
spokesman Spencer Moreri
promised to respond but by
time of going to press he was
still to comment.
judgment of the President, it
was deemed appropriate for
the individual to step aside in
the absence of proven charges
“It is true that we have had
Honourable people step down
in the context of what proved
to be unsubstantiated, in some
cases in the end even utterly
empty, allegations.”
To page 3
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