Court suspends Fowzie in oil row
Sri Lanka's Supreme Court suspended the country's Oil Minister AHM Fowzie and halted payments to banks stemming from a hedging deal that could cost the state oil company Ceylon Petroleum Corporation (CPC) hundreds of millions of dollars, lawyers said,
Opposition politicians have questioned the hedging arrangements by the state-owned CPC with Citi Bank, Standard Chartered Bank, Deutsche Bank and two local banks, which were made in expectation that the oil prices would hit $200 per barrel.
Prices have dropped instead and the hedges mean the country will not benefit while the banks do.
"The Supreme Court granted interim relief suspending all the hedging payments to the banks until the final hearing," lawyer Uditha Egalahewa, who appeared on behalf of the petitioners seeking to cancel all hedging payments, told Reuters.
Lawyers said the court had suspended Fowzie and Ashantha de Mell, CPC's chairman.
The court has yet to issue formal notifications of its ruling.
Asked to comment, Fowzie said he had heard of the court's decision.
"I do not know what the final outcome will be, until the final judgement," he told Reuters.
A spokesman for Standard Chartered in London said: "As the matter is now sub judice it would not be appropriate for us to comment on the interim ruling."
He said in a statement the bank was not directly affected.
Deutsche Bank declined to comment.
Representatives of the CPC and the other banks involved could not immediately be reached for comment.
Hedging analysts said the island nation would have to pay at least $300 million during the next seven months if global oil prices remained at current levels around $50 per barrel.
They have fallen from a record above $147 in July.
An analyst said the court decision might damage Sri Lanka's credibility in international financial markets.
"Future agreements with any party are at risk and will have serious financial repercussions with possible increase of risk premium," said the analyst, who did not want to be named.
"This might make it very difficult for Sri Lanka to borrow commercial loans in future as investors will be concerned over termination of contracts on those borrowings as well."
Hedging analysts said the deal, designed to protect oil importer Sri Lanka against large movements in prices, had been done in such a way that CPC had to pay to the banks when the oil price fell below $100 per barrel.
Financial analysts said the deal could impose a major burden on the $32 billion economy when Sri Lanka's foreign exchange reserves have declined more than a quarter since mid-September because of the need to protect the rupee.