GHANA LOST a colossal ?9,960,000,000 (US$1.2 million) at the Tema Oil Refinery (TOR) in 1998, thanks to the reckless hedging transaction indulged in by the then managing director (MD) and the deputy managing director (DMD) Messrs W.S. Parker and J.S. Aidoo respectively.

This loss excludes legal charges TOR paid to its English solicitors which also amounted to ?1,569,797,334.00 (?113,753.43).

While there clearly appears to be an act tantamount to causing financial loss to the state in the deal, the attorney general's department to which the scandal has been referred to, seems not to act fast on it, according to investigations conducted so far by the paper.

The losses were a result of a dispute that arose between TOR and the Union Bank of Switzerland (UBS), Zurich, over a hedging issue in 1998.

The issue arose when the then TOR board of directors declined to rectify the hedging agreement on the grounds that the then MD and his deputy did not seek its (the board's) approval before entering into that transaction.

Hedging is a special arrangement between companies whereby out of speculation, an amount is deposited in an account ahead of transaction. Such arrangements are binding in the event of a fall or rise in prices.

"At the general meeting of the board held on November 5, 1998 the MD sought the board's approval of the master agreement for the signature in order to rectify the transaction.

"But the board declined because the MD and the DMD entered into the agreement without its prior approval" quoted the minutes of the meeting.

Chronicle investigations concluded that no independent expert advice was obtained before TOR went into that hedging agreement; hence the then board's second reason for not rectifying the agreement.

Out of an escrow amount of US$2.3million set aside to be claimed by whoever won the dispute between TOR and UBS, only US$1.1million was brought back to the former.

Again TOR had to pay an amount of ?1,569,797,334.00 (?113,753.43) to its English solicitors, Messrs Ince & Co., being charges for services rendered on behalf of TOR in respect of the hedging dispute.

The matter was settled out of court. A resolution dated May 28, 2001 and signed by the then Energy minister, Albert Kan Dapaah, said among other things that "the board having decided to ratify the negotiated settlement proposed that UBS will refund to TOR an amount of US$1.1million out of the original escrow deposit of US$2.3 million into a Ministry of Finance (MOF) account at the Bank of Ghana (BOG)."

The current board chairman of TOR, Mr. Adu Gyamfi, when contacted, confirmed the said hedging transaction - adding that the US$1.1 million deposited was still with the MOF and that TOR had issued a letter to the ministry to collect it.

"We sent a letter in early February and we have followed up with a reminder to that effect," said Mr. Adu Gyamfi.

Before then, a letter dated November 14, 2001 addressed to the then TOR board chairman and signed by Mr. James Quarshie director for special duties at the MOF, called on TOR to "review all foreign exchange receipts in favour of TOR for the period 2000-2001 with the view to determining whether the amount of US$1.1million is truly attributable to TOR."

When asked to comment on the way that transaction was entered into, Mr. Adu Gyamfi declined to talk about this particular hedging transaction but said "hedging business is a specialized field and that whoever goes into it should first seek an expert's advice."

Again the board needs to be in the know before anybody could enter into such business for it can involve huge sums of money.

"Doing such transaction without the board's prior approval and expert's advice would be highly irregular," he said.