Hedging Option

(L to R): Nasir Uddhin Chowdhury - MD, Lanka Bangla Securities, Ajith Fernando - Group CEO, CAL, Naveed Vakil – COO, AKD Securities

Sept 14 (LBO) – Sri Lanka is looking at oil futures to hedge against increasing crude prices and control the island’s runway oil bill next year, officials said.

Sri Lanka is hoping to bring about a more stable macro-economic framework in the next few years and one such move to do this is to take part in hedging instruments so that our oil bill for next year will be a reasonable figure, Ajith Cabraal, Governor of the Central Bank, told businessmen on Wednesday.

An oil importing country, Sri Lanka’s retail fuel market is dominated by state oil giant Ceylon Petroleum Corporation and Indian fuel retailer Lanka Indian Oil Corporation.

At the moment we are studying the hedging business and then we will take a decision. There are several risks involved and we will have to also come up with a risk management policy before going in for this, Jaliya Medegama, Chairman of Ceypetco told LBO on Thursday.

There are a number of ways to do it. We are still looking at the mechanisms and methods we could adopt. The hedging component has to also be a small amount – I feel maybe no more than 25 percent [of purchases].

Hedging