CPC synonymous with corruption

Another day, another Ceylon Petroleum Corporation (CPC) controversy; this time in the form of the hedging ghost of years past. Reuters reported over the weekend that CPC lost an appeal against a London court ruling, which ordered it to pay nearly $ 162 million plus interest for non-payment of dues to Standard Chartered Bank linked to hedging deals.

Last year, the CPC appealed against the ruling in favour of Standard Chartered, which went to court after the oil firm refused to make hedging payments to the bank. The CPC had refused to make hedging payments to five banks including Standard Chartered, Citigroup and Deutsche Bank.

It will be remembered that CPC, which imported some 26 million barrels at a cost of $ 2 billion in 2007, needed to hedge its purchases of crude oil and refined products on the international market. It was exposed to the record oil rally of 2008, when oil hit an all-time high above $ 147 a barrel for US crude CLc1 in July, before crashing to less than $ 40 a barrel in December of that year.

Standard Chartered argued that the CPC had always been aware that a fall in oil prices would have made it liable to make payments to the UK-based bank. Petroleum Minister Susil Premajayantha has hidden behind the eternal excuse of appealing the decision even though this would be the second appeal lodged by the CPC. The additional legal fees and payments for former CPC officials that signed the deal to testify is also pocketed out by the Government making the entire venture a massive headache to the taxpayer.

To add insult to injury, the CPC is also fighting another battle on a different front with UAE-based Fujairah Petroleum Company. The blatant lack of transparency of this deal has raised new questions over the governance of CPC and why repeated transgressions have been allowed with little or no redress. 

It was reported that the Government agency stands to lose at least Rs. 1 billion from the deal, which industry sources allege is irregular and violated tender norms. Last week officials from a highly suspect Mocoh, a Swiss-based oil distribution, logistics and trading company acting on behalf of the UAE supplier, arrived for talks with CPC.

What makes this situation even more open for corruption is that the Chief Operating Officer was among individuals and companies in South Africa alleged to have received kickbacks under the UN’s oil-for-food programme in Iraq under the former Saddam Hussein regime. Subsequently a South African commission was asked to report on these alleged payments. The full report is yet to be released, according to South African media reports.

According to South African news reports, the UN investigation found that on at least two occasions, the Iraqis paid COO Michael Hacking illegal kickbacks amounting to $ 94,000 and $ 480,000 for his role in the oil-for-food programme.

The problem hinges on the obscurity of the new firm and few people understanding under what precedent the CPC is “rectifying” the deal. Given that the CPC has a long track record for corruption as well as staggering losses that are undermining the passing of global price reductions to the consumer; the matter needs in-depth attention from stakeholders.

Despite being a vital public institution, the CPC is identified with the proverbial “den of thieves” and it is unlikely that the situation will become better as the Government continues to turn a blind eye and refuses to address repeated debacles of massive corruption.