Hedging agreement:

Rights application to declare $ 800 million claims illegal

Wasantha RAMANAYAKE

A Fundamental Rights application was filed yesterday in the Supreme Court seeking a declaration that claims over $ 800 million made by five banks from the Ceylon Petroleum Corporation (CPC) in connection with the Hedging agreements were illegal and fraudulent.

Petitioner Charted Accountant Nihal Sri Amarasekera among other matters complained to the Court that the agreements in disguise as the Petroleum Oil Hedging Agreement between the first respondent CPC and Standard Chartered, Citi Bank, Deutsch AG, Bank of Ceylon and the People's Bank in effect had been deals in the nature of speculating, gambling, betting or wagering on the movement of the petroleum prices on notional quantities, which were unlawful, illegal and could not be enforced in law.

The petitioner stated that the claims in connection with the Hedging Agreement by the five respondent banks are well over $ 800 million. He stated that the Standard Chartered Bank had remitted well over $ 100 million between December , 2008 and April 2009 regardless of the Central Bank directives utilizing the foreign currency deposits of the public, well exceeding its reserves in Sri Lanka. The petitioner sought an interim order directing the bank to remit the money back until the final determination of the rights application.

The petitioner further stated that the foreign banks had initiated international arbitration proceedings under the Investment Promotion and Protection agreement against the Government in connection with their claims. The petitioner sought an interim order restraining the CPC from participating with any arbitration or litigation under the agreement and sought to make it a permanent order at the conclusion of the rights case. He argued since the hedging agreement amount to wagering and such agreement would not fall within scope and the meaning of investment covered by the Investment and Promotion Protection agreement.

The petitioner among host of other interim orders sought to direct the top officials of the respondent banks to explain the Court the circumstances under which the agreement came to be signed. He also sough a full disclosure expenses costs and payments of the respective banks in connection with the hedging agreement.

The petitioner sought the Banking Supervision Director of the Central Bank to conduct investigation in to the impose penalties, take warranted actions against the offenders and consider whether the Banking Licence ought to be cancelled.

He prayed for the formulation of guide line by the CPC and the Secretary to the Treasury with stipulated time schedule for the procurement of petroleum oil products ensuring the transparency.