99% of students boycotted the American BUN!
CPC’s evasion on payments under agreement resulted in the banks filing action against them in International Courts in 2009
The world experienced severe recession in 2008, with demand for oil curbing drastically
A report from the Auditor General’s Department noted that CPC has sustained a total loss of Rs. 9 billion on the disastrous hedging deal.
Shell, [British] Caltex and Esso [American] were the three powerful American oil giants which dominated the import, storage, transportation, marketing and distribution of Ceylon’s petroleum business up to 1964.
In the good old days when a car enters a station for petrol, the workers who have plenty of leisure, [as a car drops in at an average 10 or 15 minute intervals], two or three workers flock around it, with one cleaning the windscreen, others checking tyre pressures, oil levels or making a few comments on the vehicle, condition of the road ahead and so on. Then the cars did not have water jets spraying on to the glass, and there were no ACs: Power shutters or power steering never heard of.Petrol sold in gallons cost less than Rs 1.50 a gallon [4.5 Lit] was pumped manually.The three companies operated on an understanding that where the prices of the products were concerned they would not compete. They knew that price competition was disastrous for all players. Prime Minister Sirimavo Bandaranaike’s government took-over the entire operation in a monopoly under the SLFP government’s nationalisation policy thinking the country would save billions in foreign exchange, that the three multinational oil giants continued to siphon out annually by way of profits.
It was two Silvas, both senior civil servants of the day, GVS and Sam who had convinced T.B. Illangaratne, the socialist oriented minister on the exploitation of our funds and resources by the oil giants
The Nationalization Move
It was two Silvas, both senior civil servants of the day, GVS and Sam who had convinced T.B. Illangaratne, the socialist oriented minister on the exploitation of our funds and resources by the oil giants. They presented the facts and figures showing that the country could profit if the oils were imported directly and distributed by the state. That was the time when Bandaranaike governments went on a nationalization spree. Sam Silva became the first chairman of CPC, a monopoly that commenced operations.
“It could lead to the disintegration of Ceylon’s tea and rubber markets which then were the country’s bread and butter..”, said the oil companies writing articles in the newspapers; warning authorities which initially drew angry reaction from PM Sirimavo Bandaranaike. However a few months later the government acquired the assets of the three oil companies under the enactment, Ceylon Petroleum Corporation Act No. 28 of 1961. The legal draftsman unjustifiably had worded the section on
compensation as…
“The amount to be paid under this Bill for property vested in the Corporation shall be the original price incurred by the company for procurement of said property less an allowance for depreciation” -[ Section 47] The three companies backed by America and the powerful west who dominated the global petroleum industry did not take the move lying down. American President Dwight D. Eisenhower and subsequently John F. Kennedy gave us a plain bun sometimes with sesame seeds or a little sugar spread on top, a delicacy children enjoyed six decades ago. When all attempts to prevent the acquisition failed, America used its trump card; a threat to scrap the facility known as PL 480- an Aid programme, under which we got free wheat flour from the United States for the mid-day meal of school children.
Oil Hedging 2007 -
Sri Lanka’s state run oil monopoly under Chairman, [Sri Lanka’s former speed-bowler and President Rajapaksa’s relative] Asantha de Mel made crude oil price hedging deals with private banks in 2007, without utilizing the services of experts for such a multifaceted option. When the market crashed, the hedging deals’ depressing payoff for the Corporation reached thousands of millions. CPC’s evasion on payments under agreement resulted in the banks filing action against them in International
Courts in 2009.
They signed into oil price hedging deals with Standard Chartered, Citi Bank, Deutsche Bank, People’s Bank and the Commercial Bank .The agreement stated that the CPC had gone into the hedging of risk under ‘zero cost collars’ –on a ceiling of $130/- per barrel and a floor of $100/- per barrel, decided by CPC and the banks respectively, meaning that when the oil prices rose above $130/- per barrel the banks paid the difference. Similarly for floor, when the prices fell below $100/- CPC paid the banks the difference. The agreement stated that the contracts would terminate if the price remained above $130/- for 3 consecutive months with CPC, can buy a maximum 100,000 barrels per month. But, if the prices remained lower than $100/- for 12 months, only then will the deal expire –in effect if the oil market crashes the contract was valid for 12 months; and during that 12 month period CPC was obligatory to buy 200,000 barrels per month. The hedging deal had restricted the loss for the banks for price increases, alternatively, for a fall the contract had placed a high rate on the
Corporation to pay.
CPC in a very idiotic move depended on the bankers own consultants for advice. It was similar to ‘heads I win, tails you lose’ gamble in favour of the banks, perhaps backed by under-the-table deals
The world experienced severe recession in 2008, with demand for oil curbing drastically. In the months of July and August alone the prices dropped drastically from over $140/- a barrel to a under $60 per barrel. Following the non-payment by CPC, three banks sought a ruling from international arbitrators claiming that the client violated an international contract by defaulting on the derivative dealings. Some banks filed action in high courts in cities where their headquarters were established, and the rulings except in one case were against the Corporation, compelling them to settle huge sums of money as compensation. With no proper risk appraisal done, the CPC hierarchy failed to assess the volatility of the oil market. Such complex option deals necessitates appointment of experts specialized in international banking. CPC in a very idiotic move depended on the bankers own consultants for advice. It was similar to ‘heads I win, tails you lose’ gamble in favour of the banks, perhaps backed by under-the-table deals.
COPE revealed loss of over Rs 10 billion
CJ, Sarath N Silva ruling on a Fundamental Rights Petition filed with the Supreme Court, citing that the Hedging Deal caused losses, courts declared that all payments by CPC be suspended forthwith and the benefit gained to be used to bring down the Petrol price to Rs 100 per litre. The government disregarded the ruling. According to COPE, the loss suffered by the country was a staggering Rs.10.2 billion. COPE even made calculations of all related expenses, payments made to banks, future payments, legal expenses, miscellaneous expenses; the total loss would be around Rs.15 billion.
Prime Minister Sirimavo Bandaranaike’s government took-over the entire operation in a monopoly under the SLFP government’s nationalisation policy thinking the country would save billions in foreign exchange
Auditor General Reports 9 billion loss
A report from the Auditor General’s Department noted that CPC has sustained a total loss of Rs. 9 billion on the disastrous hedging deal. The biggest beneficiary was Standard Chartered Bank, who received US$ 60 million as compensation in 2013. The travelling cost of top officials who appeared in international tribunals was given as Rs. 5,261,827/-
When J. F. Kennedy threatened to scrap the free bun to schools, the writer was studying in the O/Level class.
Our courageous Prime Minister Sirimavo, who with only an year’s experience in politics, posed the question to the school’s student population; a choice between, ‘a free mid-day bun made of America’s wheat flour or national sovereignty? It was President Dwight Eisenhower who introduced the law, the Agricultural Trade Development and Assistance Act - 1954, usually known as Public Law [PL]–480.
Encouraged by that kind of patriotic, radical opinion from madam Sirimavo, 26 out of 29 in my class decided to sacrifice the mid-day meal and stage a boycott of the American ‘Carrot’.
Mid-day Meal Boycott
One fine morning, in 2011 I was on my way to the city. The car that had been pumped with petrol only a few hours before, stalled and did not start. It had to be towed to the garage of the agents in Wattala at a massive cost, where it was established that the CPC sub-standard fuel had
damaged the engine.
The fuel had to be drained while the petrol pump and injector were replaced at a cost of Rs. 36,000/- Automobile engineers say, the engine might backfire, the valve might burn, and there could be carbon deposits. The Petroleum Minister Premajayantha admitted that 20,000 metric tons of petrol imported were sub-standard and that he was on a private visit to Italy when CPC ordered it from a company in the UAE which was not listed with the CPC.
Thousands of cars were out of the roads for which the corporation promised to reimburse the repair cost.
Sixty years on, as a victim of the substandard petrol scam, I had to visit CPC head office, where they display prominently the Mission—“To achieve excellence in refining, sales and marketing of high quality products and meet the expectations of the stakeholders through a dedicated team of professionals …by providing total solutions and services exceeding customer expectation”, I carried with me all certified documents for the claim only to receive shoddy treatment by some irresponsible staff in the very institution in whose defence we had risen in our small way as school children 56 years ago. I feel sad that the CPC has come through this regretful pass today.
