CEOs of the five commercial banks involved in the disastrous oil hedging deals with the Ceylon Petroleum Corporation (CPC) must be rubbing their hands with glee these days. For all purposes it points to the government ignoring the serious ramifications of the one-sided deals, and agreeing to pay off the banks who are demanding its share of the pie.
While the two officials at the CPC involved in these transactions – former CPC Chairman Asantha de Mel and former Deputy General Manager (Finance) Lalith Karunaratne – are on the mat and have not been re-appointed or returned to their positions after the Supreme Court dismissed the case, other bank officials involved in the deal are going scott free.
The article below on the hedging fiasco lists out the ‘unethical’ canvassing that took place to get these lucrative contracts, how banks funded officials in other banks on joyrides, how CPC officials and ministers were taken on fully-paid, virtually vacation-trips, and so on. All this will be consigned to the dustbin of history even though the careers of some of these officials have been sullied by these happenings. As fresh winds blow over the saga, acutely absent is corporate governance, transparently and accountability that every Dick, Tom and Harry in the corporate world likes to talk about and professes to practice. Where were these obligations in the hedging deals -- with the exception of a few, national-minded citizens who didn’t want the country and its people taken for a costly ride?
The Central Bank has clearly said banking regulations have been violated and that the agreements should not be proceeded with. The Attorney General, whose advise was not sought in the first place as one would expect when contracts like this are signed, has recommended that the CPC should refrain from making payments which may be as high as $800 million – even though the Supreme Court has vacated all interim orders in the case.
As far as the five banks – Standard Chartered, Citi, Deutsche, Commercial and People’s – are concerned, they want the CPC to keep their bargain of the agreements and one has also filed action in an international tribunal. Soon after the court case ended, the CEOs of Standard Chartered and Citi met President Mahinda Rajapaksa to canvass their case for CPC repayments to be made. Deutsche was also interested in a meeting, it is learnt.
Rajapaksa, worried about international repercussions over the issue, had referred them to a ministerial committee appointed to investigate the issue. The committee, whose chief spokesman is Prof G. L. Peiris and includes Nimal Siripala de Silva, Dr Sarath Amunugama and A.H.M. Fowzie, told reporters on Thursday (through Prof Peiris) that they met the banks this week and was trying to come up with an amicable settlement of the issue. “The response from the banks is encouraging,” he was quoted as saying.
Let’s make it clear … an amicable settlement means the CPC has to pay and ‘an encouraging response’ from the banks is more that what the government can expect. From a near zero position after the Supreme Court suspended payments and – after the Central Bank said the contracts were flawed, the banks must be relieved that they will get their money. After all they have also hedged with an overseas party and that payment has to be made, even if the CPC didn’t pay up.
As repeatedly stated in the past, non implementation of contracts due to flawed deals cannot offend the international community. If it’s illegal, it’s illegal. People can get annoyed only if there is a deliberate attempt to stall payments without any valid reason. Thus, one fails to understand why the government got involved instead of allowing the issue to be dealt with by the correct authority – the regulator (Central Bank). There are two ways of looking at the issue of repayment. While one school of thought recognises the fact that holding back payments to foreign banks (or foreign investors) is bad for business and sentiment particularly at a time when Sri Lanka needs many friends overseas, the other view is that the state interfering in a regulatory function sets a bad precedent and could have serious repercussions in the future.
The committee’s mandate is to settle a matter in which a group of banks have been accused by the Central Bank of violating the rules. It is like saying, “okay … they have committed a crime, but let’s be lenient.”
The Central Bank, it is understood, has not been called upon to explain to the committee on its decision, a step which should have been done – amd still not too late. The oil hedging fiasco will ultimately go down in history for two reasons – where the government failed to implement orders of the Supreme Court and interfering in the functions of the Central Bank. |
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