CB pays huge amount as legal fees on hedging deal

Despite repeated denials about  the Central Bank’ involvement in the controversial   hedging deal, it had paid as much as Rs. 480 million as lawyers’ fees regarding the transaction referred to the international arbitration panels, the Daily Mirror learns.

The Committee on Public Enterprises (COPE) discussed the financial reports of the Central Bank last week at its meeting conducted in the parliamentary complex.

Ceylon Petroleum Corporation (CPC) struck a deal to hedge its purchases of crude and refined products on the international market in 2007.   It was done when the oil prices were hitting US $ 147 a barrel in 2008.  

However, the prices crashed to less than US $ 40 a barrel later, compelling the CPC to make payments to various banks with whom the hedging deal was signed with.

The deals were later taken to the Supreme Court with a ruling that the payments should not be made.

These banks sought international arbitration afterwards.

CPC struck this deal with Standard Charted Bank, Deutsche Bank, Citibank, Commercial Bank and the People’s Bank.

The role of the Central Bank was implicated in this transaction which caused huge losses to the government.

However, the report of the Auditor General said that the Central Bank paid Rs. 420 million on behalf of the CPC, but only Rs. 147.5 million had been recovered up to the end of 2013.  

Central Bank Governor Ajith Nivard Cabraal said this payment had been made on behalf of the government and CPC and it would be reimbursed.  

Also, the rep[ort of the Auditor General says the Central bank lost Rs. 36 billion in the gold transactions due to the diminishing prices in the world market and it was a global phenomenon well beyond the control of Sri Lanka.(By Kelum Bandara)