Business Times

Hedging case far from over

While media reports emerged this week that a settlement in the controversial hedging saga is close, the petitioner who filed a fundamental rights case over the contracts signed by the Ceylon Petroleum Corporation (CPC) and five banks says any payment from the government to the banks is illegal. Former PERC Chairman Nihal Sri Ameresekere who filed two public interest cases on the hedging deals said they are illegal contracts and should be annulled.

His petition also attempted to prevent the banks from initiating any litigation or arbitration in foreign jurisdictions. Meanwhile informed government sources told the Business Times that arbitration proceedings will commence and that some settlement terms have been discussed with the three foreign banks, Standard Chartered Bank, Citibank and Deutsche Bank, who initiated the proceedings.

There is a strong prospect of a mutually beneficial agreement to evolve from the proceedings although no timeframe could be given as to when the matter will be resolved or even if there will be an award at the end of the proceedings. However, he added that the banks had conceded that the contracts were one sided and disadvantageous to the CPC. No claims have been made from the two local banks, Commercial Bank and People’s Bank.

Mr. Ameresekere said that without taking into account any applicable interest, the total ‘purported’ claims for all contracts which have been completed by October 2009 amounted to around US$503 million. In comparison, he added that if the CPC had succeeded, it stood to gain only US$10.5 million. In the context of Citibank’s claim for example, which is US$194 million, presumably with commercial interest compounded on a daily basis, he said the ‘purported’ claims with applicable interest could rise to the region of nearly US$2,000 million. He said the government blatantly breached the doctrine of public trust in wagering with public money.

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