Sri Lanka loses oil hedging case amid petrol fiasco
[TamilNet, Wednesday, 13 July 2011, 01:58 GMT]
Sri Lanka’s state run oil firm, CPC, will have to pay Standard Chartered bank over $160m plus interests for non-payment of dues, a London court ruled Monday, in relation to a controversial 2007 hedging deal the firm had entered into with Standard Chartered and four other international banks, Reuters reported. Two more of these, Citi Bank and Deutsche Bank, have cases pending against CPC in the Singapore-based International Court for Settlement of Investment Disputes for around $190 million and $63 million plus interest payments respectively, Reuters added. Meanwhile, CPC has been hit by another fiasco after the government knowingly releasing for sale 20,000 metric tonnes of low quality petrol that could damage engines.
In 2007 the Ceylon Petroleum Corporation (Ceypetco, better known as CPC) entered into derivative transactions that effectively bet the price of oil would not rise or fall beyond certain limits, but the price later soared well above, and crashed well below these limits.
CPC had however refused to pay hedging payments to the five banks including Standard Chartered Bank, Citi Bank, and Deutsche Bank.
Standard Chartered Bank took CPC to court for $161,733,500 plus interest.
In a counterclaim, CPC said it was entitled to refuse to make the payments and disputed the value of hedging products designed to protect against oil price rises.
On Monday the London Commercial High Court judge Mr Justice Hamblen rejected CPC’s arguments, finding in favour of Standard Chartered.
He noted, however, "CPC, which had no appetite to lose money, should never have been sold these products."
Standard Chartered Bank's case was that CPC had always been aware that a fall in oil prices would have made it liable to make payments.
CPC is planning to appeal the decision, Reuters said.Imported damage
Meanwhile, CPC has been hit by another fiasco after a government official released to the public imported petrol that was found to be below the acceptable octane rating and which could damage engines.
Despite laboratory tests proving that the imported 20,000 tons of refined fuel was sub-standard, a senior official in the Ministry of Petroleum Resources ordered that it be released to the market, the Sunday Times reported this weekend.
This stock of petrol was hurriedly imported from the Emirates National Oil Company (ENOC), a Dubai company not registered with the CPC.
The rush was due to stocks in Sri Lanka being on the verge of drying up due to the shutting down of the Sapugaskanda oil refinery for maintenance, the paper quoted an official as saying.
Interestingly, two tenders from India’s Reliance were not considered, the paper also reported, ostensibly as the company could not supply the required amount in time.Orders followed
Petroleum Ministry Secretary Titus Jayawardene, who issued the order to import the controversial stock in the absence of CPC Chairman Harry Jayawardene and Petroleum Minister Susil Premajayantha who were on overseas tours, had also directed the CPC to fill the storage tanks with the substandard fuel.
Since then there have been over 800 complaints of engine failure and petrol pumps and injectors being damaged.
Premajayantha had at one stage denied his ministry had bought low quality fuel and instead claimed that sediment at the bottom of storage tanks had got mixed with the new fuel, and that in some outlets rain water had seeped in.
Amid public uproar, this week he insisted the CPC and the Ceylon Petroleum Storage Terminal Ltd. (CPSTL) should take the blame for the fiasco.
The chairman of the CPSTL is Major General M R W De Soysa.
Titus Jayawardane, meanwhile, has been removed from his post – he was instead transferred to the Public Administration pool, the Sunday Times reported.