The Standard Chartered Bank has initiated litigation in the Commercial Court in the UK against the Ceylon Petroleum Corporation (CPC) on the hedging deal, and the trial has now been fixed for March 28, next year, authoritative sources said yesterday.

The Bank has sued the CPC on the charge of breach of commercial activities with regard to the hedging deal. The other banks have also gone for arbitration.

The arbitration negotiations were conducted on July 26, in Singapore.  Among these banks, the Dutsche Bank of Germany has gone for arbitration on the charge that the Investment Protection Guarantee Treaty had been breached in this case.

It is a government to government deal. The Bank is insisting that the next arbitration panel should be held in October this year.  The Cabinet struck this hedging deal involving five banks in 2006 on instructions by Central Bank Governor Ajith Nivard Cabraal. Then Petroleum and Petroleum Resources Development Minister A.Z.M. Fowzie told Parliament at that time that hedging was a concept by the Central Bank Governor. Also, Mr. Fowzie said in a statement that the Cabinet appointed a sub committee to study this matter, and the deal was entered into accordingly.

Hedging deals are struck for the supply of fuel in the local market at a fixed rate despite fluctuations in the world market. When the world market prices are high, the banks which are party to the hedging agreement absorb the additional costs. The banks are supposed to profit from price reductions in the world market under a hedging deal.

However, the Supreme Court, in 2007, terminated proceedings in a case with regard to the hedging deal with all interim orders that suspended payments to banks ceasing to be operative.  The Court gave this order because the Cabinet failed to comply with orders to bring down the fuel retail prices.

The government’s total contingent liabilities for these banks are said to be in the range of Rs. 83 billion to Rs.115 billion with the interest accrued.

Posted on Friday, July 30, 2010 @ 23:55:20 JST by admin