Some major firms such as Vietnam Airlines and Petrolimex have incurred hefty losses since 2014 due to fuel hedging contracts, according to a report on audit results of 2016 released recently.

The State Audit of Vietnam’s report sent to the 13th National Assembly at its third session showed that Vietnam Airlines and Vietnam National Petroleum Group (Petrolimex) have employed derivative financial instruments in the process of buying fuels, but their poor market forecasts have resulted in heavy losses.

Vietnam Airlines in 2014 signed four fuel hedging contracts that lasted until 2015 and had to offset a loss of nearly VND2.58 trillion (about US$112 million) when the fuel price tumbled.

Meanwhile, Petrolimex Singapore Pte Ltd, a subsidiary of Petrolimex, lost US$38.23 million in 2015 due mainly to fuel hedging contracts signed between September 10, 2014 and December 11, 2014. 

In all of 2014, Petrolimex posted losses of US$35.96 million as fuels were bought at high prices from the petroleum bonded warehouse at Van Phong economic zone and then sold at lower prices.

The losses of Vietnam Airlines took place during the final year of operating as a state-owned corporation before transforming itself into a joint-stock company and launching its initial public offering in November 2014.

Prior to mid-2014, when the price of crude oil hit a record high of US$110 per barrel, many domestic firms had been plagued by the rising fuel prices which had a great impact on their balance sheets. 

Therefore, large enterprises whose production and business costs greatly depend on fuel prices have started to sign hedging contracts in recent years as a risk-averse measure.

However, from mid-2014 onwards, oil prices have fallen sharply. 

From June 2014 to October 2014, crude oil prices have fallen by US$25 a barrel and continued to edge lower in the years 2015 and 2016. 

The crude oil price once fell to US$35 per barrel before slightly rebounding from early 2017 till now, leading to the great losses of those major enterprises.

SGT