Hedge Win

April 09, 2007 (LBO) – Sri Lanka’s petroleum utility will get a 33 million rupee payment this week on the expiry of its first hedging contract for imported diesel, a top official said. Last month the utility raised petroleum prices by 7 rupees a litre (about 30 rupee a gallon).

Updated The utility first bought a ‘zero cost collar’, an options position that gave it a two dollar upside protection for 150,000 barrels diesel if diesel prices moved above 72 dollars.

CPC Chairman Ashantha de Mel said he is expecting a 33 million rupee payment in respect of the first contract.

Another 300,000 barrels also hedged in a similar fashion is expected to bring in a further 66 million rupees, from Standard Chartered Bank which sold the hedge.

Diesel prices have now moved to around 79 dollars, de Mel said.

CPC now has to raise diesel by at least three rupees to cover costs.

In its first hedge the utility did not go in for a futures contract which would have given it complete upside protection because it did not want to fork out a premium.

Petroleum minister A H M Fowzie says CPC has no plans to increase diesel prices until after the Sinhala and Hindu New