Standard Chartered Bank (SCB) said this week the Ceylon Petroleum Corporation (CPC) was fully aware of all the risks involved in their hedging agreements. In an interview with The Sunday Times FT to clarify issues raised in the newspaper last week, SCB CEO Clive Haswell said there was 'a huge amount of briefing at the CPC as well as the Central Bank about what the downside risks were in all of these transactions.' He went on to say that Standard Chartered has confirmation in writing from the CPC Board that they have fully understood (the risks). "I'm very confident that it has been fully explained to the client."
Mr. Haswell said that Standard Chartered was of the same opinion as the rest of the world on the direction of oil prices at the time the CPC hedged. "At that point in time, the big risk the country was facing was an ever increasing price of oil because it's a purchase of oil and therefore, hugely exposed to the tune of US$3 or 4 billion per annum." He added that from the country's point of view, Sri Lanka is benefiting hugely because of the low oil prices.
Mr. Haswell said the CPC Chairman is able to take advantage of the fact that the oil bill is less than US$2 billion and is able to afford to pay its contractual obligation but he said it could have easily been in the other direction with the Bank paying out the CPC, mitigating some of the worst impacts of the high oil prices. "At the time, people were speculating broadly that it would reach US$200."
Mr. Haswell said he was unable to talk about any details surrounding payments made by the CPC to Standard Chartered due to confidentiality reasons.
A payment was expected to be made to Standard Chartered by the CPC in the amount of US$27 million on Friday, November 14, the day of this interview. When asked if the payment was made, Mr. Haswell said there has been no default. "There continues to be a situation where there has been no default. We have been hedging with the CPC since February 2007 and we have been working with them for many years. We have never had a situation where there has been a default and I don't expect there will be."
Mr. Haswell said that to his knowledge, the zero cost collar option was recommended to the CPC by the Ministry and the cabinet approved technical committee. He said Standard Chartered presented a whole range of options and different structures were put forward at ongoing meetings with the committee. Mr. Haswell said he did have a meeting with the CPC Chairman last Friday (November 7) but it was not to discuss any payment. "We have meetings with clients very regularly," he said. He added that there was no need for concern on the part of Standard Chartered because there was no payment expected on that day.
Mr. Haswell did confirm to the paper that the Central Bank 'visited' Standard Chartered who were supportive in clarifying the decisions they framed. "The Bank's customers were aware of the downside risks before entering into the agreement."
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