Gold for oil: A derivative transaction or barter? — Prof. John Gartchie Gatsi

Introduction
Gold for oil presupposes a barter transaction in which commodity exchanges for a commodity with double coincidence of want as the main feature.

Barter and Derivatives
We assume that there is someone “there” interested in our gold so we can exchange the gold for oil. A derivative is a financial transaction in which price is determined today and delivery takes place at a future date. Delivery of underlying assets takes place at maturity. Payments need not to be made today until maturity. Derivative maybe over- the- counter(OTC) or exchange-traded where OTC means tailor made transaction between counter parties with terms agreeable between them and is not done through an organized exchange. Exchange traded means the transaction is done through an exchange with characteristics of standardized contracts reflecting quality, price , date of delivery with a clearinghouse that administers the deal. The nature of the gold for oil policy can only be described as OTC transactions. In any case, the price is predetermined and both short and long position holders lock in the predetermined price. Predetermined price because that is the price to be paid at maturity and upon delivery even if price assumes pendulum shifts. Long position means buyer and short position is a seller in a derivative transaction and there is a zero sum game. Zero sum game because the gain for the short position trader is the loss for long position trader.

Location of the oil doesn’t matter so long as the quality agreed is delivered at the predetermined price. Transaction may be traded multiple times before delivery date in which original contract holder may not necessarily be the one to deliver on the contract. A contract maybe signed between Ghana and a trader in Germany but the oil maybe delivered from a depot in South Korea by the German trader or an American trader who bought the deal from the German trader.

- [ ] We have been talking about derivative involving cash transactions at maturity even in normal commodities exchange this is what happens. Now, when a claim is made to exchange gold for oil it means our cash is gold but the reality is it is difficult to get a trader interested in our gold continuously and we are interested in their oil continuously. Thus if indeed it is a barter transaction, there is a developed international market for gold why would someone be interested in ours outside the international marketplace in a continuous manner. So where is the contract for the barter? How many years does it cover? Which exchange rate has been agreed or predetermined over the contract period? The last time l encountered barter was in a village called “Kamawoli” at the bank of river Oti now in the Oti region where fishermen don’t take cash in exchange for fish unless it is cassava dough or corn far back in 1998. I don’t know the situation today. There is therefore no barter trade where cash is the final consideration.

Is it a derivative transaction?, what is the predetermined price for the gold and the oil? What is the predetermined exchange rate? What is the commission charge by the intermediary? Who is the intermediary? The truth is, this is not a swap in the proper sense, it is not even a long-term contract. Is it a forward contract? Futures? No it must be traded on an exchange to assume the character of futures. What are we into?

Any arrangements that deliver refined oil without putting pressure on our forex is welcome but what are we doing? Accountability and transparency issues are not clear. This policy was announced last year and one expects it should be captured in 2023 budget meaning it has failed the prudent fiscal test. It is indeed an international agreement under article 181 of the 1992 Constitution which requires parliamentary approval first before execution. Is the contract entered into between Ghana government and the intermediary and the supplier? Or between Bank of Ghana and the foreign parties?

In 2016, Dr. Mark Osei Assibey, the then Finance Committee Chairman of Parliament sent the government to the Supreme Court demanding the interpretation that Kar power deal to help solve “dumsor “ was an international agreement between Kar power and GNPC , EGC under article 181. It is recommended to reduce the talking and seek interpretation from the Supreme Court about the Gold for Oil deal. Anyway when is the next batch of oil coming?

Some are even concerned if we are buying gold from galamsey operators too? How do we distinguish between gold produced by licensed producers from galamsey operators? How much gold did we sell to purchase the oil?

Clarity is needed about the gold for oil project. By now those who claim is an international agreement should be heading to the Supreme Court