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CPC tried to transfer all accounts to foreign banks

By Bandula Sirimanna
The controversial oil hedging crisis has taken a new turn with reports of a possible multi-faceted complicity between foreign banks and Ceylon Petroleum Corporation (CPC) officials where in one case there was an attempt to transfer all CPC accounts to the two foreign banks now at the centre of a Central Bank probe, an investigation by The Sunday Times Business Desk shows.

Initial investigations reveal that just before the hedging contracts were signed in 2007, the CPC chairman without the consent of its board of directors had taken a decision to withdraw all its deposits from the two state banks, the Bank of Ceylon and People s Bank, and transfer them to the Standard Chartered Bank (SCB) and Citibank.


Fowzie
This request was turned down by President Mahinda Rajapaksa after considering objections made by a senior official of the Petroleum Resources Ministry during a meeting of the National Economic Council chaired by the President, informed sources said. It has also been revealed that the CPC Chairman had submitted a paper with legal advice claiming that the CPC was not covered under the Finance Act and therefore its financial transactions and accounts were not under the purview of the Auditor General. The then Secretary to the Ministry referred the matter to the Attorney General (AG) who overruled the CPC chairman, the sources said.

Incidentally Auditor General S. Swarnajothi was summoned before the Parliamentary Committee on Public Enterprises (COPE) earlier this week for the hearing into the oil hedging crisis but his evidence was not recorded as opposition and government legislators, in particular Minister Susil Premajayantha, were heavily involved in grilling CPC Chairman Asantha de Mel over the transaction.

The sources said at the hearing where Mr Premajayantha was armed with plenty of documents including articles from The Sunday Times, Mr. de Mel and other CPC directors had appeared to be surprised at the understanding of hedging and the contracts that were shown by the committee.

Hedging, not clear to many people in Sri Lanka, is like an insurance policy where one pays a premium to protect against any losses incurred in a business or individually. In the present CPC issue, the hedging mechanism required no premium but a payment by both parties (CPC and the banks) when oil prices swing either way up or down.

The problem was that while the banks had to pay the CPC anything above $135 per barrel (and this payment was restricted to $1.5 million a month) and confined at this level, the CPC was forced to pay the banks any price below $100 per barrel. Thus even if the oil price falls to $10 per barrel, the CPC must pay a fixed rate to the banks.

The liability to the CPC ranges from 400 to 700 million dollars. Emerging evidence clearly shows that neither the Cabinet (barring Minister Fowzie) nor the CPC Board (barring Mr. de Mel) gave proper sanction to the contracts.

Our investigation also reveals that the Ministry of Petroleum Resources had not been properly informed about the CPC s decision to hedge on oil.

Our investigation also reveals that the Ministry of Petroleum Resources had not been properly informed about the CPC s decision to hedge on oil.

The 5-year-old child killed was identified as Sutharsan Sivakumar and the elderly male was identified as Raman Ramasamy. Another person, killed on the spot, was yet to be identified.