The State Trading Corporation was created by an Act of Parliament in 1982 State Trading Corporation NOT AN OFFICIAL UNCTAD RECORD

OBJECTIVES OF STC To negotiate the purchase of goods To negotiate the purchase of goods To engage in the manufacture or processing of goods and to ensure their marketing To engage in the manufacture or processing of goods and to ensure their marketing To import goods with a view to their marketing, distribution or supply by wholesale or retail To import goods with a view to their marketing, distribution or supply by wholesale or retail To export goods To export goods To engage in such other activities as may be authorised by the Minister To engage in such other activities as may be authorised by the Minister State Trading Corporation

GOVERNANCE OF STC Ministry of Industry, Small & Medium Enterprises, Commerce and Cooperatives Board Sub Committee Sub Committee Management Management State Trading Corporation

General Manager Commercial Finance Risk & Projects IT Administrative Human Division Division Division Division Division Resource Division Division MANAGEMENT STRUCTURE OF STC State Trading Corporation

Products Annual Qty Metric Tons Ration Rice 18,000 Flour96,000 Petroleum Products 1,032,000 Liquefied Petroleum Gas 66,000 Cement200,000 PRODUCTS IMPORTED BY STC State Trading Corporation

PRICE RISK EXPOSURE ON PETROLEUM PRODUCTS Product Annual Quantity Mt Tons Exposure% Premium Unleaded 93, Gas Oil 343,00050 Total436,000 State Trading Corporation

MARKET ANALYSIS Before any decision for hedging is taken, a market analysis is carried out. Market Situation Market Situation (hyperlink) Market Situation State Trading Corporation

FACTORS AFFECTING THE COMMODITY PRICES  Stock Levels  Global Demand – World Economy  Weather risks  Geopolitical Factors  OPEC reaction  Lack of refining capacity State Trading Corporation

WORLD PRICE VOLATILITY State Trading Corporation

IMPACT OF PRICE INCREASES A USD 1/BBL increase in prices of Petroleum Products costs the national economy an amount of USD 6m. State Trading Corporation

HEDGING OF PETROLEUM PRODUCTS In 2002, the Government decided to hedge Price Risk Exposure. State Trading Corporation

CREATION OF RISK DIVISION The Board of the STC decided to create the Risk Division in State Trading Corporation

OBJECTIVES OF THE DIVISION Hedging of Petroleum Products Hedging of Petroleum Products Hedging of Liquefied Petroleum Gas Hedging of Liquefied Petroleum Gas Management of Treasury Management of Treasury Procurement of Foreign Exchange Procurement of Foreign Exchange Investment of USD and MUR Investment of USD and MUR State Trading Corporation

INTERNATIONAL SECURITIES AND DERIVATIVES ASSOCIATION (ISDA) Before hedging transactions are done with foreign Counterparties, ISDA have to be signed. In September 2003, a U.K. firm of legal advisors were appointed. State Trading Corporation

COUNTERPARTIES The State Trading Corporation has signed ISDA with the following Counterparties:-  Citibank NA  Barclays Bank PLC  Morgan Stanley  Standard Bank PLC  Societe Generale  Mitsui Energy Risk Management LTD State Trading Corporation

COMMODITY PRICE RISK Commodity Price Fluctuations affect Cash Flows and Companies are exposed to various risks. Hedging Commodity Price Risk forms part of any comprehensive Financial risk management process. State Trading Corporation

REVENUES REVENUES COSTS COSTS COMMODITY LINKED FINANCING COMMODITY LINKED FINANCING MANAGING CASH FLOW State Trading Corporation

Automatic Pricing Mechanism (APM)  Effective since April 2004  Range: Maximum Increase /Decrease – 20 % Minimum Increase /Decrease – 2.5 %  Price reviewed on a quarterly basis Cost Plus Basis International Trade:- 50% Sales are made at Cost plus Margin Revenues State Trading Corporation

Commodity Hedging Techniques:- Options Options Swaps Swaps Hedging Fund:- Cost element included in the Price Structure Cost element included in the Price Structure Quarterly Cost / USD 300,000 Quarterly Cost / USD 300,000 Costs State Trading Corporation

No Commodity linked financing from banks or Capital Markets is used. COMMODITY LINKED FINANCING State Trading Corporation

HEDGING TECHNIQUES USED  CALL SPREAD  CALL SPREAD WITH A SELL PUT (3 way Options) (3 way Options)  SWAPS State Trading Corporation

Call Spread A Call Spread consists of buying a Call at a level and selling another Call at a higher level Sell Call Sell Call USD / BBL 69 Buy Call USD / BBL 69 Buy Call State Trading Corporation

Call Spread with a Sell Put (3 Way Option) A second hedging alternative is to use the same Call Spread levels and sell a put at a lower level, say USD 60/bbl. 80 Sell Put 80 Sell Put USD/BBL 69 Buy Call 60 Sell Put 60 Sell Put State Trading Corporation

SWAP A Swap consists of exchanging a floating price for a fixed price. USD 69/bbl Swap Level USD 69/bbl Swap Level State Trading Corporation

HEDGING GAS OIL NOVEMBER 2006 State Trading Corporation

HEDGING GAS OIL DECEMBER 2006 State Trading Corporation

HEDGING GAS OIL JAN, FEB AND MARCH 07 State Trading Corporation

HEDGING PREM. UNLEADED NOV & DEC 2006

HEDGING PREM. UNLEADED JAN, FEB AND MAR 2007

HEDGING LPG JAN, FEB AND MAR 2007 State Trading Corporation

GAIN ON HEDGING TRANSACTIONS PeriodAmountUSD Q ,000 Q ,006 Q ,978 Q ,600 Q ,421 State Trading Corporation

THANK YOU State Trading Corporation