Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2008/200812/20081220/article_385190.htm
Companies lock horns over oil hedging
Created: 2008-12-20
Author:Winnie Zhu
SHENZHEN Nanshan Power Co, a Chinese power producer based in the southern city, and Goldman Sachs Group Inc are in talks to resolve a dispute over oil-hedging contracts that caused losses for the utility.
The parties may take legal action if the talks fail, Nanshan Power said in a statement to the Shenzhen Stock Exchange late Thursday. The Chinese producer is refusing to pay for losses on contracts signed in March based on oil prices ranging from US$62 to US$66.50 a barrel.
Benchmark crude oil in New York has fallen to US$36.44 a barrel from a record US$147.27 in July.
Nanshan Power and other fuel consumers such as Air China Ltd have lost money in hedging contracts as the global credit crunch led to volatility in commodity prices, Bloomberg News said.
Nanshan Power is "in active negotiation" with Goldman Sachs and will disclose progress on the issue, the Chinese company said without elaborating. "The contracts have been terminated," said the electricity generator based in Shenzhen.
Connie Ling, Goldman Sachs' Hong Kong-based spokeswoman, declined to comment. The New York-based investment bank earlier this month cut its forecast oil prices in the first quarter by half to US$30 a barrel.
Nanshan Power in October halted trading of its shares after state regulators said the contracts bought from Goldman Sachs' Singapore unit didn't pass "proper decision-making channels and violated state laws."
In one contract, Nanshan Power may gain as much as US$300,000 a month if oil prices were to rise above US$63.50 a barrel between March 3 and December 31, the company said on October 22. The company will incur a loss if oil falls below US$62.
The parties may take legal action if the talks fail, Nanshan Power said in a statement to the Shenzhen Stock Exchange late Thursday. The Chinese producer is refusing to pay for losses on contracts signed in March based on oil prices ranging from US$62 to US$66.50 a barrel.
Benchmark crude oil in New York has fallen to US$36.44 a barrel from a record US$147.27 in July.
Nanshan Power and other fuel consumers such as Air China Ltd have lost money in hedging contracts as the global credit crunch led to volatility in commodity prices, Bloomberg News said.
Nanshan Power is "in active negotiation" with Goldman Sachs and will disclose progress on the issue, the Chinese company said without elaborating. "The contracts have been terminated," said the electricity generator based in Shenzhen.
Connie Ling, Goldman Sachs' Hong Kong-based spokeswoman, declined to comment. The New York-based investment bank earlier this month cut its forecast oil prices in the first quarter by half to US$30 a barrel.
Nanshan Power in October halted trading of its shares after state regulators said the contracts bought from Goldman Sachs' Singapore unit didn't pass "proper decision-making channels and violated state laws."
In one contract, Nanshan Power may gain as much as US$300,000 a month if oil prices were to rise above US$63.50 a barrel between March 3 and December 31, the company said on October 22. The company will incur a loss if oil falls below US$62.
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