The Sri Lankan Government is strongly defending its position in the controversial oil hedging case which is currently being examined by an arbitration panel in Singapore but a surprise witness to the proceedings on Wednesday was former Attorney General Shibly Aziz, official sources said.
They said Mr Aziz, not a member of the 14-member Sri Lankan delegation which included former Petroleum Minister A.H.M.Fowzie and former Ceylon Petroleum Corporation (CPC) chairman Asantha De Mel, presented a moderate stance of the issue while appearing as an independent witness. Details of his evidence wasn’t immediately available.
Citi Bank has filed for compensation against the CPC and the arbitration proceedings began in Singapore on Monday, and will proceed till November 13 when a verdict is due. The sources said Sri Lanka has made it clear that it has acted in accordance with bilateral and international norms of financial agreements based on Investment Protection Treaties. They said Sri Lanka cannot agree to pay compensation of US$ 261 million or the equivalent of little over Rs. 30 billion demanded by three foreign banks for the abrogation of the hedging deal with the CPC. Citi Bank was exposed to 400,000 barrels of oil under the hedging contract with CPC.
The sources said the CPC and Citibank signed an agreement for an oil hedge at US$73 pb (per barrel) on a trial basis for a period of three months. Citi bank then made a strategic exit after making a US$4 million “knock-out payment” to the CPC when the hedge went in favour of CPC saying that there was a “single client limitation.”
The sources said Citi Bank misled the CPC but did a mistake in calculating the risk and ended up with a huge unexpected payment to the CPC. This will be brought to the notice of the arbitration panel, a senior official of the Attorney General’s Department said.
Following a Supreme Court ruling given in November 2008 against the hedging agreement, three foreign banks had invoked arbitration demanding US$ 64 million (Deutsche Bank), US$ 103 million (Standard Chartered Bank) and US$ 94 million (Citi) from the CPC. 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.
Arbitration proceedings in the complaints made by the other two banks is due to begin in early 2011. |
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