The government’s failure to implement a Supreme Court ruling has created a dangerous precedent – the state’s ability to disregard the law and get away with it. In future, any ruling by the court that the government doesn’t like could lead to a similar situation.
The court verdict, though perceived publicly as a backing off in the stand-off with the Executive, could put the country in deeper trouble economically – an issue the government may have not properly addressed or has been ill-advised.
By lifting the interim orders on the suspension on oil hedging payments by the Ceylon Petroleum Corporation (CPC) to the five banks – Standard Chartered, Citi, Commercial, Deutsche and People’s – the way has been cleared for international arbitration. The Citi Bank, as our report on the previous page says, is said to have filed such action over CPC dues to the former.
The arbitration process is under international law and in this case, any violation of a contract as it appears to be in the oil hedging deals – whether the deals were one-sided or not is irrelevant in this case – could be a negative to the CPC. The arbitration decision could also impact on agreements the CPC has with other four banks and could result in the state agency forking out around $800 million in payments.
Apart from causing a serious dent in the CPC’s negative balance sheet, what this would mean to the country’s shrinking foreign exchange reserves is nothing less than disastrous. The Central Bank (CB) has been having a to-and-fro battle with The Sunday Times over our recent report where economists and exporters urged the government to either depreciate or devalue the rupee, or seek an IMF bailout package to meet a shortage of foreign cash.
While not directly referring to our reports but calling it ‘some media reports’, the CB has rejected the calls and said the reserve positions were sound and that some new measures – mobilizing support from Sri Lanka’s Diaspora in investing in treasury bills and bonds and encouraging migrant workers to send home more money with added interest as an incentive – would add to the foreign cash flow.
Not many people however are impressed with these schemes and whether it would bring the desired results.
The CB has chosen to reject any form of criticism and this week did the same, virtually rejecting its own data as our story, in response, shows. As one corporate leader said, the CB through its governor is stepping into an ‘economic minefield’, throwing various numbers around that are being contested, left-right-and-centre.
The CB and the government also abhor any criticism of economic policy, however objective it is.
Any criticism of government policy, just like in the case of the military or politics, is frowned upon by the government. In some cases, some economists have been labelled as ‘economic terrorists’. In fact, a corporate executive was recently reprimanded by a government official was saying something that was unpalatable to the government.
While the hedging issue – where the CPC got entangled in a one-sided deal and with the oil prices falling has to cough out millions of dollars – should have been the principal focus of the petitions before court, the issue turned into a battle between the government and the people on fuel pricing.
Hedging was overtaken by the fuel pricing which ultimately resulted in the government dilly-dallying on bringing down petrol prices to Rs 100 per litre as ordered by court. Using the loss of revenue from taxes as an excuse, the government reduced petrol by Rs 2 to Rs 120 per litre from Rs 122 and instead offered a wider package of relief to the people and the export industry.
The court, not happy with the shenanigans of the government, then sought to terminate the case. A possible contempt of court move against Treasury Secretary Sumith Abeysinghe, the main respondent, for failing to comply with the court ruling, didn’t happen. Earlier, Mr Abeysinghe, in anticipation of a contempt of court issue, had filed one or two affidavits explaining that he had taken steps to comply with the ruling by informing the government on the need to obey the orders of court.
The government may rue the day they took on the Supreme Court – in this particular case – and end up (through the CPC) paying a costly liability that would eat into depleted foreign reserves.
The banks will push through international arbitration for full payment on all claims under legitimate contracts with the CPC.
Whether the CB, if need, can convince an international panel on the stance that the contracts had violated local laws and thus should not been proceeded remains to be seen.
Or we would have to eat humble pie like the Prima case where an international tribunal ruled that the Sri Lankan government owes Singapore-based Prima nearly Rs.4 billion in subsidy payments?
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