Hit by a British court ruling to pay US$ 180 million (Rs. 23 billion) to the Standard Chartered Bank (SCB) over oil hedging deals by the Ceylon Petroleum Corporation (CPC), the Government now wants to negotiate a settlement to pay a lesser amount. Attorney General Palitha Fernando said yesterday that talks were going on between [...]

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Hedging : Govt. seeks compromise with SCB

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Hit by a British court ruling to pay US$ 180 million (Rs. 23 billion) to the Standard Chartered Bank (SCB) over oil hedging deals by the Ceylon Petroleum Corporation (CPC), the Government now wants to negotiate a settlement to pay a lesser amount.

Attorney General Palitha Fernando said yesterday that talks were going on between the CPC and the SCB to reduce the payments to US$ 60 million (Rs.7.8 billion). The payment owed to the SCB is US$ 160 million plus US$ 20 million interest.

Since talks were going on, the AG said there was no need to make an appeal in a British court. The CPC has remained silent on the transaction which together with other hedging deals has cost it billions of rupees.

In the latest blow to the CPC, a US-based arbitration panel this week awarded US$60 million plus $7 million in legal costs to the Deutsche Bank in a similar dispute over oil hedging payments.

Regarding the next step to be taken, the Attorney General said he had sought the advice of the British lawyers who appeared on behalf of the CPC before the World Bank-affiliate, the International Centre for Settlement of Investment Disputes (ICSID).

Two members of the three-member arbitration panel held in favour of the Deutsche Bank while the other member ruled that the application should be dismissed.

“The only alternative now is to get the award annulled. However we have asked an opinion from the British lawyers because we didn’t appear in this case,” Mr. Fernando said.

Dues owed by the CPC to SCB, the Deutsche Bank, the Citibank, the Commercial Bank and the People’s Bank are running into billions of rupees with additional legal costs being added to the overall bill. Legal costs alone are expected to run into billions of rupees for the Government this year, officials said.

The flawed oil hedging deals were exclusively exposed by the Sunday Times in November 2008 a few months after the CPC failed to honour its dues to the SCB. Thereafter subsequent reports led to a Supreme Court fundamental rights petition and the Central Bank blocking CPC’s foreign payments to banks. The three banks then sought foreign arbitration to claim their dues.

The hedging deals, which were irregularly done and no proper authority sought, turned sour when oil prices crashed in 2008 and the CPC was forced to pay enormous sums to the banks because proper safeguards were not included in the contracts with the banks. The two local banks are watching the arbitration process and are likely to make their claims once it is established that the CPC has to pay, oil industry sources said.

Earlier the CPC succeeded in the claim filed by the Citi Bank before a Singapore arbitration panel, with the later rejecting the $192 million claim. Instead the bank was asked to pay $2.5 million in legal fees to the CPC.

The Gssovernment is yet to take legal action against those involved in the hedging deals except to sack a few officials including CPC Chairman Asantha de Mel. In August, public interest activist Nihal Sri Ameresekere wrote to Petroleum Resources Minister Susil Premajayantha asking why no action was taken against persons involved in oil hedging transactions, with the former Attorney General Mohan Peiris, himself, having asserted that these deals were illegal.




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