The judgment of the controversial Oil Hedging dispute heard before the London Commercial High Court against Sri Lanka Petroleum is reserved. The arbitration action relating Sri Lanka’s controversial oil hedging begin on March 28 this year and it was filed by Standard Chartered Bank to recover US$ 161 million for nonpayment of dues by the Ceylon Petrolium Corporation (CPC).
The hedging deal in early 2007 when CPC entered into a transaction to hedge against rising oil prices with Standard Chartered, Citi and Deutsche as well as two local banks – the State-owned People’s Bank and the listed Commercial Bank. The CPC had made the hedging pact at a time of expectations that oil prices would reach $200 per barrel. Crude prices have dropped instead, to stand around $47 a barrel resulting the banks being benefited by the hedges but not the government.
The Attorney General Mohan Peiries together with a team of state attorneys who defended the action said that the hearing was over and that the judgment would be delivered in July. The last hearing of the case was on May 29.
“We defended the action denying the allegation on the alleged hedging deal,” AG Mohan Peiries PC said.
The legal team headed by Attorney General also defended before the arbitration panel claiming that Ceylon Petroleum Corporation had no right to enter into such transactions and its ultra-virus to the Constitution.
Former Petroleum Minister A.H. M. Fowzie, former CPC chairman Ashantha de Me under whose tenure the oil hedging agreements were signed were among the witnesses while Clive Haswell, former Standard Chartered Bank Colombo CEO Colombo, the main person in the controversial hedging deals with the CPC were among the other witnesses. The President of the Bar Association, Shibly Aziz PC had given evidence as an expert witness.
In 2009, hearing two Fundamental Rights application filed challenging the oil hedging deal by the CPC, the Supreme Court vacated the interim orders ruling that the consequence would be fallen on the government and other respondents who fail to comply with the court directions. The court orders were vacated when the petitioners of the case including opposition politician and a Buddhist monk withdrew their petitions in protest of government failure to honour the court orders.
At that stage the Supreme Court had directed the government to reduce oil prices which was far too high with the world oil prices. At the outset the Supreme Court had issued interim orders suspending CPC Chairman, Asantha de Mel, CPC Deputy General Manager (Finance) Lalith Karunaratne and the CPC foreign exchange payments due to five commercial banks and fuel pricing.
The position taken by the Supreme Court was that the contract entered between the three foreign banks and the CPC was ultra-vires as it was against the instructions of the Central Bank.
During the Fundamental Rights action the Supreme Court bench also had directed the government to bring down the fuel prices. The court had given one month time to the Secretary of the Finance Ministry to show cause as to why it could not bring down fuel prices to Rs.100 in accordance with the court ruling, but there was no reply from the Finance Ministry Secretary.
Subsequently in protest for not complying with the Supreme Court order, petitioners withdrew the actions claiming that the government had to take the responsibility of any consequences relating to oil hedging for its failure to comply with the court direction.
In addition to the arbitration case before London Commercial High Corut, the CitiBank also had filed an arbitration case on the same issue, and the order has been reserved by the Singapore Arbitration panel.
The third and final case has been filed by Deutche Bank in the Washington-based UN International Centre for the Settlement of Disputes (ICSD) is scheduled to hear shortly. (SRF)