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Our View: Consumers pay as EAC refuses to buy oil at cheapest prices

When the price of crude oil went into freefall, Energy minister Giorgos Lakkotrypis wrote to the chairman of the EAC board, asking him to examine “as a priority”, the prospect of purchasing fuel in advance “through the different tools available on the international markets such as options, futures or others.” He also wrote that this would allow the authority to secure the supply of fuel for power generation at a low price, “that would be to the benefit of the consumer”.

Anyone could have understood the point made by the minister, but he received no reply from the chairman. A report in Politis on Wednesday, said the EAC was “examining” the matter, but no decision had been taken. Why has the authority always been so reluctant to take advantage of the low crude oil price? A few years ago, it was censured for this reason by the Energy Regulator (Raek), for its refusal to buy crude when the price was low. It would not have to take delivery immediately, but it would be locking the low price.

One reason is that the EAC is a semi-governmental organisation at which nobody is willing to take the risk of getting things wrong – buying now and seeing the price of oil falling further in two or three weeks’ time. The decision-maker might be subsequently accused of failing to buy at the cheapest price. Then again, nobody ever knows when the price of oil, shares or commodities will reach the lowest point so the rational thing to do would be to keep buying small amounts as the price falls, thus lowering the average cost.

EAC considers this speculation and opts for the orthodox approach, because it is a monopoly and knows that the higher cost at which it buys oil will be passed on to its customers, who cannot buy their electricity from another provider. It will certainly not affect the high salaries of its well-paid employees as the electricity rate is calculated on a cost, plus surplus basis. Monopolies can do that, passing on the cost of their inefficiency and overstaffing to the consumer.

Even now, after Raek has obliged it to cut 10 per cent off all its bills for April and May, in order to help customers, the EAC obviously saw no reason to heed Lakkotrypis’ sensible advice. Brent Oil futures for June are in the region of US$25 per barrel, about US$5 higher than the spot price, but it is still a good price to secure oil, considering last January it was US$60 and could return to that price by the time the EAC buys fuel again.

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