Hedge Loss

May 29, 2009 (LBO) – Lanka IOC, a unit of Indian Oil Corporation said it lost 1.6 billion rupees in the March 2009 quarter against a profit of 890.7 million last year as the firm was hit by adverse oil hedges and taxes. But oil prices collapsed in the second half of 2008 and the government cut retail prices, with steep reductions in diesel.

LIOC said revenues fell 17.6 percent to 10.4 billion rupees. Costs rose to 11.8 billion rupees.

In January a 4.4 billion rupee government bond that had been given to off-set losses made by controlled prices had matured.

The company had cut some borrowings with the cash. Managing director Suresh Kumar said two remaining hedging contracts cost the firm more than a billion rupees. The contracts will run out in June and July.

Sri Lanka’s state-run Ceylon Petroleum Corporation ‘hedged’ about a third of its oil imports using an exotic options derivative which had higher downside risk last year, in contracts that runs till the middle of 2009 and are currently in arbitration.

As its main competitor LIOC tried to mirror the hedges as it is also subject to the same pricing pressure from the government.

LIOC said last year it had managed to exit some of the tr