Currency Risk Matters and the new Hospital in Jersey

Jersey can protect itself from Euro–Sterling currency swings by fixing contract terms in Sterling, using hedging instruments, or building contingency buffers into the hospital budget.

Why Currency Risk Matters

The chosen contractor is the UK branch of a French company, meaning some costs may be denominated in euros (e.g., materials, specialist labour, or parent-company services) itv.com.
If Jersey pays in sterling but the contractor’s supply chain is euro-based, exchange rate volatility could inflate costs unexpectedly.

Practical Safeguards Jersey Could Use

• Sterling-denominated contracts
• Require all payments to be made in sterling, shifting the currency risk onto the contractor. This is common in UK public projects involving overseas firms.
• Currency hedging: Use forward contracts or options to lock in exchange rates for expected euro-denominated expenses. For example, Jersey could agree today to buy euros at a fixed rate for the next 3–5 years, insulating the project from swings. Where hedging wasn’t used, projects like Crossrail saw budget overruns linked partly to exchange rate volatility.
  
• Split-risk clauses: Negotiate clauses where exchange rate movements beyond a set threshold trigger renegotiation or shared cost adjustments. This prevents either side bearing disproportionate risk.
• Local sourcing where possible: Encourage the contractor to source materials and labour in sterling markets (UK or Jersey), reducing euro exposure.

Jersey’s Context

Jersey’s government already faces tight fiscal warnings from advisors about major spending commitments (as with the Fort Regeneration project) itv.com. Ensuring the hospital build is insulated from currency shocks is critical to avoid unexpected deficits or politically damaging overruns.

 In short: Jersey should insist on sterling contracts, hedge any unavoidable euro exposure, and budget for contingencies. That way, the island won’t be at the mercy of Euro–Sterling fluctuations while building its new hospital.

Lessons from Energy from Waste Plant


The States Auditor concluded that Jersey mishandled foreign currency risk in the Energy from Waste plant contract, exposing the island to unnecessary costs.

Key Findings from the Auditor’s Report (March 2009)

Contract signed in November 2008: Although originally intended to be all in sterling, the final EPC contract required substantial payments in euros. The exchange rate was not fixed at signing, leaving Jersey exposed to fluctuations jerseyauditoffice.je.

14 November 2008 decision (contract signing): The States relied on flawed recommendations from Treasury staff with limited currency experience. Instead of limiting risk, the approach extended the exposure period and was inconsistent with prior planning.

Auditor’s verdict: “The action taken was not appropriate.” What should have been done: fix the exchange rate (e.g., via agreement with the contractor or financial instruments) jerseyauditoffice.je.

17 December 2008 decision (Treasury policy): Policy adopted was to buy euros as needed, with “trigger points” for opportunistic purchases. Auditor judged this as the “least unattractive” option available, but still left Jersey acting like a speculator. Suggested that Treasury should have considered call options to cap downside risk jerseyauditoffice.je.

10 July 2008 decision (post-States approval): No action taken to fix the rate, partly because of uncertainty over final approval. Auditor said this was “not unreasonable,” but the most straightforward approach would have been to transfer liquid funds into euros early jerseyauditoffice.je.

Cost impact: The July 2008 estimate was £106.36m. By November 2008, due to euro movements, the sterling equivalent cost had risen to £114.23m  - an increase of nearly £8m jerseyauditoffice.je.

 Overall Conclusion: Jersey’s handling of currency risk was inadequate and inconsistent with its own planning. The States were not equipped to manage currency exposures and should have fixed the rate at contract signing. The failure to do so led directly to higher project costs and unnecessary exposure to exchange rate volatility.

In essence: The Auditor found that Jersey’s Energy from Waste plant procurement suffered from poor currency risk management, costing millions more than expected. The lesson for the new hospital project is clear  -  fix contracts in sterling or hedge euro exposure from the outset.

Sources: States Auditor’s Energy from Waste Plant – Management of Foreign Currency Exchange Risks (March 2009) jerseyauditoffice.je.