Lankan offers to stabilise oil prices

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 CPC officials.

“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.

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