April 04, 2009 (LBO) – Deutsche Bank has filed arbitration proceedings against the government of Sri Lanka over non-payment in oil derivatives deals with state refiner Ceylon Petroleum Corporation (CPC). Citibank has already gone into arbitration against the CPC.
CPC did the derivatives deals to protect itself when oil prices were surging and the contracts were initially profitable for the refiner when prices hit record highs.
But CPC incurred heavy losses when oil prices fell steeply in the latter part of 2008.
Sri Lanka’s Supreme Court suspended CPC payments to banks when the deals were challenged in court on the grounds of corruption.
However, that suspension was lifted in January 2009 when the petitioners withdrew their cases.
But then Sri Lanka’s Central Bank stepped in and ordered CPC to suspend the transactions on the grounds that they were flawed. The Deutsche Bank claim was registered with the International Centre for Settlement of Investment Disputes (ICSID) on 24 March 2009, according to the international dispute resolution centre.
The bank claims that the Sri Lankan government violated the bilateral investment treaty between German and Sri Lanka.