Banks involved in the controversial oil hedging deals involving the Ceylon Petroleum Corporation (CPC) have been making payments to overseas counterparts (banks) despite an order not to do so by the Central Bank (CB), The Sunday Times reliably understands.
It is learnt that Standard Chartered Bank, seen as the lead bank in the transactions, has paid at least $100 million (Rs. 11.5 billion) to a counterpart bank in recent weeks while at least one other local bank has also made payments.
Some months ago, while the first hedging petition was being heard in the Supreme Court, the CB gave a direction to the banks that since the agreements had violated exchange control regulations, they should be cancelled and no payments made whatsoever.
On Friday, the CB sent another letter to at least one local bank asking it to suspend payments. This came a few days after Supreme Court, responding to a fresh FR petition filed by public rights activist Nihal Sri Ameresekere on the hedging deal, issued an interim order for the CB’s Director of Bank Supervision, the Chairman of the Commission to Investigate Allegations of Bribery or Corruption, the Director of the Criminal Investigation Department (CID) and the Attorney General to carry out investigations on the contracts and take action in terms of the applicable law.
None of the banks -- Standard Chartered Bank, Citibank, Deutsche Bank, Commercial Bank and People’s Bank – was available for comment.
Some months back a fundamental rights (FR) petition was filed in the Supreme Court alleging that hedging agreements were one-sided and favoured the banks.
The CB told court it was flawed. The case was dismissed after the government refused to oblige a court order to reduce petrol prices. The dismissal, however, did not bar the CB or bribery authorities from, independently, proceeding with their inquiries into violations and allegations of corruption.
The Sunday Times learns that the local banks were surprised at Friday’s letter directing them to stop payment, when already several monthly payments have been made, and they have expressed concern that the CB order has no legal basis.
But questions are being asked as to how the banks have been making payments despite an earlier CB ruling and why the CB did not take any action until last Friday.
An official from Exchange Control declined to comment when asked about this matter. Under the agreements, the CPC owes the banks at least $800 million in hedging contracts that end this August. Even if the CPC has suspended payment to the five banks, they have to meet their international obligations as all the transactions had a counterparty (overseas bank) involvement.
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