Lankan offers to stabilise
Unique proposal could slash oil prices to $40
from current $70
Sri Lanka could lose a golden opportunity of paying
below-world market rates for fuel and much below current rates of
Rs 93 per litre of petrol all because a frustrating knocking-at-the-door
effort by a concerned Sri Lankan expatriate with state authorites
is at a stalemate.
Upul Arunajith, a Chartered Marketer and Derivates
Markets Specialist based in Canada, had offered a proposal to the
government on a combination of hedging, swap and future options
on oil contracts which could have resulted in the cost of fuel being
capped at around $40 a barrel – a rate Sri Lanka would have
paid now - compared to the world market price of $70-72 per barrel.
If the proposal had been accepted and put into
operation, Sri Lankans would now be paying 2003 fuel prices of Rs
50-55 per litre, some Rs 40 less than current prices – but
it seems due to official apathy and indifference, the proposal has
been on the back-burner for the past four years.
“Except for some action on my initiative
last year when Mr. Mano Tittawela got cracking after the proposal
was referred to him by Power Minister Susil Premjayanth, there hasn’t
been movement on this issue.
The consumer and the CPC would have immensely
benefited if the plan was underway,” a disappointed Arunajith
told The Sunday Times FT earlier in the week.
But on Friday he said there appears to be a silver
lining as the authorities were once again looking at the merits
and de-merits of this proposal. “All I want is for the government
to look at this proposal thoroughly and if still not convinced,
then there is nothing more I can do,” he said.
Arunajith, who has a consultancy in Canada with
two partners, is a long-standing Toronto resident who decided to
offer his expertise and advice to the Sri Lankan government to help
the country. So far he has spent some $20,000 (Rs 2 million) on
travel to Colombo plus other costs from his own pocket but has made
little headway with a proposal any other country would have grabbed.
His disappointment ironically comes at a time
when President Mahinda Rajapaksa is wooing Sri Lankan expatriates
to come and help their motherland in whatever way they could. ‘Here
I am offering my help but no one is listening or taking note.”
The Sri Lankan expat’s fresh attempt to draw government attention
last week comes as the government and the LIOC are still battling
over a deal relating to the delayed subsidy payment to the Indian
company. In 2002, he had submitted a crude oil hedging proposal
aimed at developing a mechanism to identify and quantify the exposure
of the CPC and introduce commodity hedging without any delay.
Between 2002 and 2006 he has met or communicated
with then and now Ministers Karu Jayasuriya, Susil Premjayanth,
Sarath Amunugama (finance) and A.H.M Fowzie. The proposal saw some
movement last year.
Among officials Arunajith met or communicated
with were Mano Tittawela, Dr P.G. Jayasundera, Charitha Ratwatte
(as Finance Secretary), Dahan Wimalasena, Jaliya Medagama and other
“This attitude of policy makers due to a
lack of understanding and official apathy of a situation is very
disappointing,” he said.
When he made the hedging mechanism proposal in
2002, world market prices were $28 per barrel. It was at that time
planned to cap the maximum rate the CPC will pay for fuel in the
open market at $40 per barrel which meant that if the prices went
over this capped rate, the CPC would still be paying $40 per barrel.
Hedging schemes helps a company to lock in fuel prices and protect
against soaring costs.
A successful example of how this hedging
mechanism worked and proved a success for a foreign company whereas
Sri Lanka didn’t even examine it properly was Southwest Airlines
from the US. In a report last year, the US airline said profits
soared because it had capped 85 percent of its fuel purchases at
$26 per barrel under hedging mechanism which was half the actual
cost of oil in the world market during that period.