Sc Suspends Asantha De Mel, Stays Hedging Payments

[Corolla121]

SC suspends Asantha De Mel, stays hedging payments

The Supreme Court today ordered to suspend the duties of CPC Chairman Asantha De Mel with immediate effect and stayed any payments on hedging agreement entered by the CPC. The Court directed to appoint Secretary to the Treasury to act as the CPC Chairman until a suitable person is appointed. Further President Mahinda Rajapaksa was directed to take over the Ministry of Petroleum and the importation and exportation and selling of petroleum products.

http://www.dailymirror.lk/DM_BLOG/Sections...spx?ARTID=33585

Edited November 29, 2008 by Corolla121

[MasterDon]

heyyy..why is'nt anyone replying to this thread...this is huge news....right?

hmm maybe ppl are afraid that this'll turn political....

[Az]

heyyy..why is'nt anyone replying to this thread...this is huge news....right?

hmm maybe ppl are afraid that this'll turn political....

I think the only thing that will be on most of our minds is, will the fuel prices be reduced drastically to reflect the drop in global oil prices? In Sri Lanka, people have never experienced sharp drops in prices; only sharp increases, so may be most people are skeptical about his. BTW, the SC & the Chief Justice have given several crucial judgments that should have been made by the top guy & other politicians who are supposed to be running the country. Perhaps, the SC should take over the responsibility of running the country??? Looks like they will do a better job.

[Gummybr]

Respect for the SC....

Down with Mr. Cricketer.

BTW Fowzie still is the Minister so it seems....

Now will the prices come down.

[Velocity]

RESPECT TO THE CJ FOR DOING A GREAT JOB....

[Devinda_Z]

its not worth commenting about just yet seeing that a $400 million payout needs to be made before we can savour the benefit of low oil prices...

bottom line is thye made a deal where the banks would only loose a max of $3 million where as the pottential for the govt/Ceyptco to loose was unlimited!

its good the those in power are being held accountable by the SC - its a start but there is much to be done

this is a fiasco that should and could well have been avoided

[Devinda_Z]

How a zero cost hedge can cost as much as $400m

Whilst few predicted oil prices crashing or would dispute that hedging is necessary, it is the structure of the hedge entered into between CPC and the Banks that is at issue, according to hedge analysts.

Under a typical Zero-Cost Collar hedge, the importer sets the maximum price for oil, the High Collar. In response, the bank sets the floor price, the Low Collar. If the market price is above the high collar price, the Bank will pay the difference between the high collar price and the market price to the importer. If the market price is below the low collar price, the importer will pay the difference between the low collar price and the market price to the Bank. In this case no premium is involved.

The CPC decided around May 2008 to hedge for 12 months, after completing a few shorter- term hedges. A long one-year hedge is risky with volatile oil prices, inflated by speculators. Here is a typical hedge structure CPC entered into:

1. The High Collar or maximum price was set at $145 and the Low Collar or minimum price at $130. If prices ranged between these levels, neither party paid.

2. If prices are above the High Collar level $145/barrel, CPC is paid by the bank with a maximum payment of only $1.5 million per month for a total of two months only [maximum payout $3 million] and the transaction gets automatically cancelled [knocked off]. This protects the banks from large payouts. So the maximum ‘profit’ CPC can make is US$ 3 million for the contract.

3. If prices drop below the Low Collar $130, CPC has to pay the full difference between $130 and the actual price of oil (in this case $48) for double the quantity i.e 100,000 barrels x 2 = 200,000 barrels for the entire remaining duration of the contract (no auto cancellation like when prices go up). So, analysts say, the benefits are asymmetrical – limited, low risk for bank and high, unlimited risk for CPC.

Under this arrangement, total payments by banks to CPC since hedging started in 2007 was over $23 million. Then prices started falling. CPC has since paid almost $40 million to the banks. For October 2008 alone $27 million was paid. The payment for November is estimated at $45 million. For the duration of the current hedge with Standard Chartered Bank and others to May 2009, total payments could be as much as $400 million among all banks.

If global energy prices continue their downward spiral, the CPC hedging loss payments would increase even further. “If prices drop to levels that were seen a decade ago we will end up paying more for the hedge gone wrong than the actual oil,” one analyst said.

Source : http://www.sundaytimes.lk/081130/FinancialTimes/ft313.html

[xXx]

heyyy..why is'nt anyone replying to this thread...this is huge news....right?

hmm maybe ppl are afraid that this'll turn political....

ooh... are you boys missing my presence in this tread???

BTW, the SC & the Chief Justice have given several crucial judgments that should have been made by the top guy & other politicians who are supposed to be running the country.

i'll just say one of the key judgments given to reduce the price was initiated and put in to effect during you know who's premiership. yet another silent acknowledgment on his policy making.

now that the hedging debacle got some publicity time to focus on the sterilize dollar peg issue. CB has already lost $ 1 billion in just 3 months. i think its high time for CJ to get involved to get rid of cabral too.

Edited December 1, 2008 by xXx

[mazdaspeed]

heyyy..why is'nt anyone replying to this thread...this is huge news....right?

Ya in deed …. Wanted to replay on Sat but had to go out

I for 1 am quite happy to hear the news – It’s no secret that I’m not a fan of Hasith De Mel (Not personally)

Banks have been smart & have done a great job in securing their profit as would any organization. CPC & the buffoons in parliament should have analysed it.

We all know the story of the donkey trying to do the dogs job – well this is exactly what has happened with the hedging – Let people who know the subject do the job

Makes u wonder if some 1’s account got fatter ?????????

Great Stuff SC

Edited December 1, 2008 by mazdaspeed

[miniace]

RESPECT TO THE CJ FOR DOING A GREAT JOB....

Yeah thats a good slap !! Atleast CJ got the guts n the attitude. During the hearing CJ questioned about Mr De Mel's educational qualifications..answered..upto A/Ls ..not even passed A/Ls ...Hallelujah Banana Republic !!!

MINIACE

[Gummybr]

Did u guys notice that ST has about 1 1/2 pages for this issue.

Also an ex-chairman of CPC says that petrol / diesel (doesnt say which) can be given at a rate between Rs. 50 - 60 and nothing more.

Here it is http://www.sundaytimes.lk/081130/FinancialTimes/ft315.html

[Devinda_Z]

Did u guys notice that ST has about 1 1/2 pages for this issue.

Also an ex-chairman of CPC says that petrol / diesel (doesnt say which) can be given at a rate between Rs. 50 - 60 and nothing more.

Here it is http://www.sundaytimes.lk/081130/FinancialTimes/ft315.html

if they had simply bought fuel the way they normally do instead of taking a gamble hedging!

[xXx]

Ya in deed …. Wanted to replay on Sat but had to go out

I for 1 am quite happy to hear the news – It’s no secret that I’m not a fan of Hasith De Mel (Not personally)

Banks have been smart & have done a great job in securing their profit as would any organization. CPC & the buffoons in parliament should have analysed it.

We all know the story of the donkey trying to do the dogs job – well this is exactly what has happened with the hedging – Let people who know the subject do the job

Makes u wonder if some 1’s account got fatter ?????????

Great Stuff SC

i never thought i'd say this but from what's been uncovered and what's been mentioned in the media MP’s nor the cabinet are at fault fawzi been the exemption. the hedging agreement was never presented to the CPC BOD, attorney general, cabinet or the CB monetary committee.

saying that i doubt much could have been achieved by running the agreement through the cabinet anyway.

first i felt sorry for asantha coz it looked like he genuinely tried to tackle the high energy price issue (i actually mentioned this couple of weeks ago in another thread) but he chose the wrong instrument hence it all went tits up. but now looking at the hush hush way CPC entered this deal i can't help but to think this was done entirely in the hope of fattening pockets of handful of individuals.

rumour has it asantha's daughter got a top rank job at SCB. i have a feeling this is just the tip of the ice burg

[Ripper]

Yeah thats a good slap !! Atleast CJ got the guts n the attitude. During the hearing CJ questioned about Mr De Mel's educational qualifications..answered..upto A/Ls ..not even passed A/Ls ...Hallelujah Banana Republic !!!

MINIACE

oh yeah... greatness of political appointments!

CJ should next take up mihin air issue

[xXx]

if they had simply bought fuel the way they normally do instead of taking a gamble hedging!

oh my good man don't ever compare hedging with gambling it's like saying getting an insurance policy is a gamble (this too i have mentioned sometime ago in another thread) i work for a company that provide hedging facilities for others so i do know a bit about this 'new phrase' that’s in tip of everyone’s mouth these days.

CPC simply chose the wrong type/choice of hedging. they should have gone for a plain vanilla option (this is the more popular and simpler version) instead of a zero cost collar.

what's going happen in the next couple of weeks is, government media will continuously broadcast images of soliders posing in front of a name board that says 'killinochchi' government will organize a serious of publicity stunts to showcase this and people will forget how they were robbed in broad day light.

the way i see it this fake patriotism that’s sweeping the nation has turned into some what of a bubble. the day it bursts MR & Co have to migrate to a new planet. that day will be when sri lanka face an economic crisis similar to what Argentina faced in early 2000. hunger and unemployment will sure to burst this bubble. the way things are going that day is not too far away.

[madmax]

I'de hold back on the celebrations till we see an actual price drop!

[Pericles]

I'de hold back on the celebrations till we see an actual price drop!

Yeah, Tru dat.

[xXx]

I'de hold back on the celebrations till we see an actual price drop!

Max another thing you should hold on to is your hard earned USD's rupee is to crash in the next few months and the doller will shoot atleast by 10-15 rupees. if you can hold on to them till 3rd quater of next year it'll go even higher.