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House of Assembly - Fifty-Second Parliament, Second Session (52-2)
2012-02-14 Daily Xml
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FOREIGN CURRENCY EXPOSURE

In reply to Mr WILLIAMS (MacKillop—Deputy Leader of the Opposition) (9 November 2010) (First Session).

The Hon. P. CAICA (Colton—Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Aboriginal Affairs and Reconciliation): I am advised:

1. The foreign exchange losses referred to by Mr Williams relate to the 2008-09 Financial Year and were related to a foreign exchange option attributed to the desalination project to mitigate foreign exchange exposure during the pre contract phase.

At the time of the contract phase in September 2008, the Australian Dollar had weakened significantly against the United States Dollar, Euro, Pound and Yen as well as a number of other major currencies. A lower Australian dollar had the potential to increase the cost of plant, equipment and materials to be purchased by the successful bidder from overseas.

In order to ensure full compliance with Treasurer's Instruction 23 Management of Foreign Currency Exposures and the SA Water Risk Management Policy, advice was sought by SA Water from the South Australian Financing Authority (SAFA) to manage this risk. SAFA developed a strategy for SA Water and arranged an options purchase of foreign currencies to hedge against the foreign exchange risk on the desalination project. When the desalination contract was awarded the currency risk was transferred to the Contractor.

Appropriate foreign exchange hedging strategies were undertaken, including obtaining forward foreign exchange cover, to comply with Treasurer's Instruction 23 (part 23.9) where foreign currency risk or exposure exceeds the equivalent of AUD $100,000.

All the fair value movements and associated premium costs of the foreign exchange of the derivatives were expensed through profit and loss. This is in accordance with Australian Accounting Standards Board 139 Financial Instruments: Recognition and Measurement.

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