Supreme Court orders price reduction of Petrol in Sri Lanka
Lanka IOC, a unit of Indian Oil Corporation, is cutting the retail price of petrol to 100 rupees a litre on an order by Sri Lanka's Supreme Court.
The government, expecting oil prices to continue climbing, had agreed earlier this year to buy all of its fuel at the price of USD 134 a barrel until next summer. In recent months, however, the price of oil has plummeted to under USD 38 a barrel. And this could cost the government as much as 775 Million Dollars.
With oil prices plunging, the Supreme Court ordered the government to immediately reduce the state-set price of petrol from 122 rupees to 100 rupees (about USD 1). But instead, the court's orders have created a black market that sent the price in some places skyrocketing to 145 rupees a litre.
And there is a corruption angle here too.
The state-owned Ceylon Petroleum Corporation (CPC) entered into contracts with five banks led by Standard Chartered Bank (SCB), since January 2007, to protect itself against rising prices. When prices were over 135 dollars per barrel in mid-2008, the CPC was benefited as it had sought protection on the upside.
But with prices crashing after that and now at less than 40 dollars per barrel, the CPC ended up owing the banks and the latest liability could be as high as 1 billion dollars by May 2009, at current crude prices. If it falls to 25 dollars, as reported in the British Financial Times, the liability could be higher.
The Supreme Court, temporarily stopped CPC payments to the banks until two petitions, alleging fraud and corruption in the hedging deals were dealt with. The court suspended the CPC chairman and asked the President to consider replacing the petroleum minister, who has been accused of not properly supervising the CPC on the hedging deals.
A Lanka banker said that head offices of these international banks would think twice before pursuing any legal action for non payments since these are highly questionable deals and raise ethical issues. If the CPC fails to make the payments, the local branches of SCB and CitiBank may lose millions of dollars.
Oil appears to be more problematic to the Sri Lankan Government than LTTE.
It is also heard that a top Indian Company is in as deep trouble in this petro gambling.