The oil hedging controversy took another turn this week after the petitioner in the fundamental rights case, former PERC Chairman Nihal Sri Ameresekere, submitted a motion to the Supreme Court stating that the purported claims from the hedging contracts could be much higher due to compound interest rates as specified in the International Swaps and Derivatives Association (ISDA) Agreement.
Mr. Ameresekere is seeking to have the hedging contracts entered into between the Ceylon Petroleum Corporation (CPC) and five banks, annulled. The motion filed this week outlined amendments to the original petition filed on 25 June 2009 due to subsequent disclosures made by respondents in the case to the Supreme Court.
In the motion, Mr. Ameresekere states that the 4th respondent Citibank had claimed a payment of US$194 million under the ISDA Agreement from the CPC on 22 December 2008. However, Citibank’s transactions went on until June and July 2009 and in the absence at that time of oil price movements for the months after 22 December 2008, the question arises as to how such claims of US$194 million were made months earlier.
According to Mr. Ameresekere’s calculations in the motion, the claims on Citibank’s transactions as at end November 2008 stood at around US$62 million and at US$84 million as at end December 2008. As at end June and July 2009, the claims totaled US$204 million. He states that the question arises as to whether the colossal sum of a purported claim of US$194 as at 22 December 2008 is a consequence of interest at fair market value on the basis of daily compounding, as stipulated in the ISDA Agreement.
The motion also points out that the banks had remitted foreign exchange without the approval of the Controller of Exchange. According to the affidavit submitted by the Controller of Exchange, Standard Chartered Bank (SCB) Sri Lanka made payments totaling US$107.7 million between 12 December 2008 and 14 April 2009 to SCB in London, a point that is denied by SCB in an affidavit submitted to Court. Commercial Bank of Ceylon made payments totaling US$7.7 million between August 2008 and April 2009 to Citibank in New York.
Mr. Ameresekere further notes that SCB’s affidavit states that ‘…in fact, there was a general expectation that the price of crude oil would move up as much as to US$200 per barrel…” The motion states that ironically, the two contracts the CPC entered into with SCB had a cap price of US$139 per barrel and US$149 per barrel.
The motion also states that Mr. Ameresekere understands that up to now, over Rs.100 million has been incurred on legal costs in defending foreign arbitrations and litigations with more considerable costs yet to be incurred. He further states that according to affidavits and statements tendered to the Supreme Court, certain public officers have admitted that they were provided foreign travel, in some cases with their families, by SCB, Citibank and Deutsche Bank.
The five banks involved are SCB, Citibank, Deutsche Bank, Commercial Bank and People’s Bank. The case is coming up in the Supreme Court on November 19. |
E-mail