Citibank has gone to an international arbitration tribunal for the enforcement of the hedging contracts with the Ceylon Petroleum Corporation (CPC), The Sunday Times learns.
Citibank is reported to have filed action prior to this week’s Supreme Court ruling to vacate all its interim orders on the hedging agreements with the CPC.
However a spokesman for the Standard Chartered Bank which also signed the hedging deal with the CPC said, “As an international bank recognized globally for our high levels of governance, we always seek to comply
with relevant local and international laws and regulations."
Petroleum Minister A.H.M. Fowzie said the government was not bound to honour the due to banks in terms of a Central Bank decision.
He said the CPC had still not resumed the import of crude oil as it was now being handled by the Treasury in accordance with the Supreme Court’s interim order.
Meanwhile, an official of the Commission Investigating Allegations of Bribery or Corruption said they were probing charges by the Central Bank relating to the hedging deal.
Meanwhile analysts said the Supreme Court ruling could have dire political and economic consequences for the country.
Transparency International’s Sri Lankan chief J.C. Weliamuna said the government’s refusal to comply with the Supreme Court order to reduce the price of petrol was 'unprecedented'.
He said this was perhaps the only known case where the government refused to carry out a part of a Supreme Court order. "It is also unprecedented that the Court gave an order and withdrew it," he said.
Constitutional expert Rohan Edrisinghe said the government’s refusal to obey the court order had created a dangerous situation because it amounted to violation of the Constitution.
He said the government’s failure to implement the 17th Amendment was also a violation of the Constitution and it appeared that the government might get used to the idea of violating the Constitution and the law and only doing what it wanted.
Dr. Edrisinghe said he feared the country was going from a constitutional government to an authoritarian government.
Leading economist Sirimal Abeyratne said the oil hedging crisis surrounding the CPC had created a negative impression about Sri Lanka and it could have a harmful impact on foreign investments.
He said foreign countries and organizations had a wide range of choices as far as their investment destinations were concerned and there was no good reason why they should consider Sri Lanka above any other country in Asia.
“If the CPC pays what is estimated to be around US$ 800 million to the banks in terms of the hedging contracts, Sri Lanka's foreign reserve position will plunge drastically. Gross official reserves stood at around US$ 3 billion in mid 2008 and have since come down to US$ 1.5 billion or lower by this week,” he said.