CPC to hedge oil purchase soon

Channa Kasturisinghe

COLOMBO: The Government's proposed oil hedging programme is expected to become into effect within the next few weeks which will enable the country to absorb the shock of any future oil price increase in the international market.

The Government will initially tryout the hedging mechanism with the purchase of diesel and following the Cabinet approval the Ceylon Petroleum Corporation (CPC) has already called for tenders from interested Banks.

"The CPC will consider the bids of Deutsch Bank, Standard Chartered Bank and City Bank and enter into an agreement with one of them as a hedge provider very soon, Petroleum and Petroleum Resources Development Minister A. H. M. Fowzie told the media at the Central Bank yesterday.

"We want to keep the diesel price as stable as possible as high price of diesel can directly contribute to the rising cost of living as it is used in transportation and electricity generation," he said.

Central Bank Governor Ajit Nivard Cabraal said the country's oil import bill has been rising during the past few years and reached a figure of 2070 million US dollars in 2007. "Using the hedging mechanism we expect to maintain the oil import bill at around 1.8 billion US dollars," Cabraal said.

He said having considered various hedging methods the Government prefers to use Zero Cost Collar method which will enable the CPC to purchase fuel at around 65 US dollars a barrel. The hedge provider will bear the cost of the difference whenever the fuel price go up from that limit," Cabraal said.

The country's fuel consumption has been increasing due to high dependence on diesel for electricity generation and Sri Lanka imports about 33 million barrels of fuel per year.