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Tuesday, 2 August 2011 00:02 - - {{hitsCtrl.values.hits}}
By Shihar Aneez and C. Bryson Hull
COLOMBO (Reuters): A Singapore-based international arbitrator on Monday voided an oil hedging deal between Sri Lanka’s state oil company and Citibank, rejecting the bank’s demand for $192 million plus interest in payments it said it was owed, sources said.
Sri Lanka’s Ceylon Petroleum Co. (Ceypetco) has been fighting the hedging deal since late 2008, after oil prices collapsed off record highs and the Indian Ocean island was left owing money.
All told, Sri Lanka’s treasury was exposed to about $464 million in claims from Citibank, Standard Chartered, Deutsche Bank, Sri Lanka’s Commercial Bank and the state-run People's Bank..
In the second ruling on the case so far, the International Centre for Settlement of Investment Disputes in Singapore handed Sri Lanka its first victory on Monday.
“The entirety of the transaction is not right and Citibank’s claim has been dismissed,” one of five sources involved with the case told Reuters.
Four other sources involved on both sides of the case confirmed the ruling and said it also means Ceypetco will have to return $12 million in payments it got from Citibank when oil was near $140 a barrel.
Sri Lanka wins...
All spoke on condition of anonymity, and was not immediately clear on what basis the arbitrator ruled.
Last month, a London court found Ceypetco owed nearly $162 million plus interest to Standard Chartered for non-payment of hedging dues. Ceypetco, heavily subsidised by the government treasury, has appealed.
Deutsche Bank has asked the Singapore arbitrator to award it around $60 million and that case is set to be heard later this month, a Colombo-based Deutsche official told Reuters.
Commercial Bank and Bank of Ceylon have not gone after the roughly $50 million they are owed.
A source familiar with Citibank’s thinking said it was likely the bank would appeal the ruling.
Ceypetco, which imported some 26 million barrels of oil at a cost of $2 billion in 2007, needed to hedge its purchases of crude and refined products on the international market.
It was exposed to the oil rally of 2008 when prices soared to a record $147 a barrel for U.S. crude in July, before crashing to less than $40 in December.
Sri Lanka’s Central Bank, which was facing a possible balance of payments crisis at the time, halted the hedging payments to all banks, saying the deals appeared tainted.
The head of Ceypetco was relieved of his duties.
The banks have all denied wrongdoing, and privately have blamed Sri Lankan officials for failing to put in any protection against a collapse in oil prices, which would have cost it less.
