CPC Loses Appeal In London: Must Pay US$ 162 Million +
By Faraz Shauketaly
The Ceylon Petroleum Corporation (CPC) has lost its appeal in a British Court against Standard Chartered Bank. The Court ruled against the state-owned petroleum company which has a near-monopoly status in the country.
The ruling in London means that the CPC must now pay US$ 162 million plus interest to Standard Chartered Bank although the country’s Minister of Petroleum has indicated that an appeal may be made against the judgment with a higher court. The case stems from the infamous ‘hedging contracts’ that was approved by Sri Lanka’s Cabinet of Ministers who ignored significant warnings at the time that the country stood to lose significant sums if the oil price reversed its upward trends.
The Cabinet of Ministers at the time chose not to insure against falling prices and instead chose to contract only against rising prices. In an unfortunate sequence of events the CPC was exposed to the remarkable rally of the international oil price which saw prices rise to above US$ 147 per barrel in 2008 before crashing to US$ 40 per barrel – precipitating astronomical losses for the cash-strapped CPC.
The CPC acting on advice it received from its political masters, refused to pay five banks including Standard Chartered, Citibank and Deutsche Bank.
The other two banks were Peoples Bank and Commercial Bank – both local banks.
The government position has been that the five banks failed to realise that proper procedure was not followed and that in effect the agreements reached were ‘ultra-vires’ meaning that CPC officials had acted outside of the mandate given to them.
A similar argument was used in Singapore where the CPC had judgment in its favour. The judgment has never been released publicly although our sources speaking on anonymity revealed that the ‘Singapore arbitration was a victory for the CPC based on a legal technicality’.
Petroleum Minister Susil Premajayantha issued a statement saying that discussions were being held with the Attorney General’s Department with a view of appealing that decision in the House of Lords, in England.
The newly appointed Attorney General confirmed that line of action adding that they had to “study the ruling first.” The CPC had a spend of over USD 2 Billion in 2007, importing around 26 million barrels of oil and refined product and had sought to hedge against fluctuating oil prices.