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Oil-hedging payments: Crucial talks tomorrow
View(s):By Feizal Samath
Officials of the Standard Chartered Bank (SCB) are due to meet Treasury Secretary P.B. Jayasundera tomorrow to clarify a Cabinet decision to settle a five-year old payment dispute over flawed oil hedging deals, with a US$ 60 million (Rs 7.5 billion) payout.
Fresh issues have emerged with banking industry sources close to the negotiations saying there has been no agreement between the bank and the Ceylon Petroleum Corporation (CPC), as yet, on the amount and that the Cabinet nod was a one-sided decision.
Senior SCB officials declined to comment saying no one at the bank was authorised to speak on this issue. Nor could they comment on the planned meeting with Dr. Jayasundera and his officials.
The Cabinet this week said the CPC would pay SCB US$ 60 million, in lieu of the US$180 million ($160 million plus 20 per cent interest) awarded by a British court last November to the SCB, as a settlement payment. Confirming the decision, Central Bank Governor Ajith Nivard Cabraal said the amount was based on negotiations between the bank and the CPC.
Banking industry sources said that while discussions had been going on between legal teams from the CPC and the SCB, no finality had been reached by both sides on an agreed figure.
Sri Lankan authorities have been grappling over claims by SCB, Deutsche Bank, Citibank, Commercial Bank and the People’s Bank running into billions of rupees with additional legal costs for oil hedging contracts with the CPC. The deals were flawed and contested in the Supreme Court with a ruling that the payments should not be made. The banks then sought international arbitration. In the SCB case, the Government has the right of appealing to a higher court in Britain but has decided to settle (out of court)
for a lesser amount, the sources said.
Earlier the Central Bank imposed a fine of US$120 million on SCB for violating banking sector regulations pertaining to the hedging contracts. However the imposition of the fine has been delayed pending the outcome of the arbitration process.
The hedging deals, which were irregularly done and no proper authority sought, turned sour when oil prices crashed in 2008 and the CPC was forced to pay enormous sums to the banks because proper safeguards were not included in the contracts with the banks.
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