Sri Lanka petroleum hedging deal goes to Bribery Commission

 The Bribery or Corrupt Commission today began the investigations on the most controversial hedging agreement of the Ceylon Petroleum Corporation (CPC). 

The Chairman of the Commission Ameer Ismail told the media that the Bribery or Corrupt Commission in near future hopes to question the former Chairman of CPC Asantha De Mel and his staff over this agreement. 

The Commission also hopes to get a detailed report over the massive lost incurred by the Sri Lanka government due to this controversial hedging agreement. 

When oil prices were rising under this controversial hedging deal the CPC had entered into an agreement with five local and international banks to buy crude oil at a capped price. 

The hedging deal was concluded by the CPC in February 2007 and under the said deal, oil price was capped as US $ 130 a barrel and floor price was at US$ 100 a barrel. 

According to the hedging agreement, if the price rises above US$ 130 for 3 months, the hedge agreement terminates allowing the CPC to buy only 100,000 barrels per month at a price US$ 130 whereas the CPC is compelled to buy 200,000 barrels per month at a price of US$ 100 as the hedge agreement only terminates after lapse of 12 months if the price of oil were to dip below US$ 100. 

The hedging deal went sour when the oil fell below US$ 50 in the world market and CPC stood to lose nearly US$ 500 million.

Sri Lanka's Supreme Court intervened and in November 2008 the Court ordered the CPC to suspend the controversial hedge payments to banks until a Central Bank probe into the matter is over.

However several parties in Sri Lanka claimed that highly suspicious oil hedging deal was contrary to all financial regulations of the government.

They further claimed that as a result of this deal Sri Lanka government has incurred a loss of Rs. 25 billion. 

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