Financial Times

Oil hedging and resultant losses to the CPC

By Percy Thenuwara

As a former Director of the Ceylon Petroleum Corporation (CPC) who made a proposal to the Chairman and the Board in 2001 on the necessity of studying in detail the several options available in the purchase of oil, I must say that the CPC should have pursued in setting up a separate unit to research various types of 'Oil purchase contracts' i.e. "OIL Futures Trading with reputed International exchanges such as N.Y.Mercantile Exchange, S'pore SIMEX, Intercon Exchange or entering into contracts such as "Options", "Cap", "Floor", "Zero-Cost"etc.

The CPC should have had a Research & Development (R&D) Department with well trained officers, equipped with International Research analysis and data on the behaviour of the oil market and a risk analysis unit for risky operations such as hedging. At least now the CPC must take the initiative to set up such an R&D division for serious research, studies and analysis on the behaviour of the volatile oil market. Such a division could be entrusted with following up on any changes and improvements taking place in the international and local markets and even make recommendations to the government on any regulatory controls needed for the smooth operation of oil supply and distribution.

The public has every right to know all the details pertaining to this 'Secret Deal' – as reported by the media on the contracts -- as it is no more a secret but appears to be a 'scandal' forcing the public into increasing financial difficulties as every rupee the CPC and the government earns from its fuel prices are coming from the hard earned money of the public. It is of grave public concern as where otherwise they may have spent only Rs.70 or Rs.80 per litre of petrol, they are still spending Rs.122.

The artificial fuel prices imposed by the CPC to cover up their losses have led to another big problem. That is the silence on the exorbitant profits, made by the CPC's competitor, Lanka Indian Oil Company (LIOC) which is importing their fuel at the currently prevailing reduced prices (in the range of US$ 40s and 50s) but selling at the government announced prices of Rs.122 per litre of petrol and Rs.80 per litre of diesel. Can we imagine the profits made by LIOC as a result of this? Can the public allow LIOC to sell their products keeping such profit margins at the expense of Sri Lankan consumers?

The country should not lose any time but get the services of some right thinking patriotic people who are also knowledgeable in the oil business to go into all aspects of the high risk, high value oil trading and the related workings and management of the CPC as the country can ill afford any more financial losses or a 'MESS' OF THIS NATURE !

(The writer is a former Director/Working Director – CPC, and former General Manager – Shell Gas Company and Colombo Gas Company).


 
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