South Asia

Published: Wednesday 31 December 2008

oil hedging hurt: On November 28, Sri Lanka's supreme court suspended the petroleum minister and halted payments to banks in connection with an oil hedging deal. Analysts say the deal, agreed under a zero-cost collar contract, could cost the state oil company Ceylon Petroleum Corporation (CPC) at least US $300 million. The zero-cost collar contract is a trading strategy used in the short term to seek protection from market volatility.

In June 2008, CPC entered into the contract with five banks--Citibank, Standard Chartered, Deutsche Bank and two local banks--on the assumption that the global oil price would hit $200 per barrel. It committed to purchase 100,000 barrels of oil per month for three months at $140 per barrel cap and 200,000 barrels of oil per month for 12 months at $100 per barrel floor. This meant if oil prices went above $140 per barrel, CPC would still be able to buy oil at $140 per barrel with the banks bearing the loss. And even if the oil price dropped below $100, CPC will have to pay $100 per barrel. In recent months, even though the oil price fell to around $44, CPC is buying oil at a higher price and passing the burden on to consumers.

The ruling was in response to the Fundamental Rights petition filed by Sri Lankan civil society group Corruption Watch. The court also suspended the corporation chairman Ashantha de Mell and recommended that the president take over the petroleum ministry.

Ambitious target: Bangladesh's interim government unveiled a renewable energy policy to ease the country's electricity crisis. Under the policy, the country aims to produce about 10 per cent of its required electricity from renewable energy sources such as solar, wind, biomass, biogas and hydropower by 2020. To achieve the target, the government needs about US $1.5 billion and plans to attract all investment from the private sector. The policy underlines incentives for both domestic and foreign investors, which include exemptions from corporate tax for 15 years and low interest loans. Coal and natural gas account for 30 per cent of Bangladesh's power demand.

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