In addition to having a fixed-to-floating swap where CPC receives fixed in return for floating within a cap and a floor, it is 'leveraged' with double the notional amount on the downside.

"If the price moves below 81.50 dollars a barrel I have to buy twice the volume," CPC Chairman Ashantha de Mel said.

Citibank's head of commodity trading in Asia Pacific Ananth Doraswamy said the deal was individually structured based on the needs of CPC.

"They have protected themselves from the upside, and to pay for the protection they had cut the downside," he says.

"If the oil price keeps getting lower and lower CPC has to buy at a certain price. That is the element of risk CPC has taken.

"But I believe the country is willing to take a certain price and that is the price we used for striking the lower part of the deal. But the upside is up to 90 dollars and that is what is beneficial to the public."

There is a knockout built in to the structure at 90 dollars a barrel, meaning that the structure ceases to operates above that level.

The structure is based on the average price for the month, and continues to operate in the remaining months with a provision to reset the strikes.

"The volatility of diesel is about ten dollars so even if you lose a few months you should be able to gain in others," Doraswamy said.

CPC has also hedged 100,000 barrels of crude using the same structure with a cap of 73 dollars and a floor of 66 dollars a barrel. The volatility of crude prices however is higher than diesel.

In the first month CPC has earned 772,500 dollars from the deal.

It has previously done zero-cost option structures with Standard Chartered Bank.

CPC is held back from moving out of zero cost collars due to fears that its management will get hauled up before parliament if a deal goes against the utility after paying an upfront premium.

De Mel says he is creating a fund out of hedging settlements received so far to try out plain vanilla futures or options and future date.

He has also called for a national hedging policy which will set parameters at prices which the country is willing to pay for oil, so that CPC can fix the prices at that level.

Economists point out that the country needs an automatic price adjustment formula to prevent global energy prices from hurting the country or government finances.

A hedging policy could only supplement this, not replace it.