Business
Cash Strapped, CPC Turns to the Robber Barons
By Ranjith Jayasundera, Sunday Leader 4/5/08
May 5, 2008 - 7:40:25 AM

US$500 million, it would seem, is the magic number for breeding controversy in the Rajapakse government. Newspaper reports in January 2008 confirmed that the CPC has negotiated a supplier's credit of US$ 500 million of diesel which invariably requires a GoSL guarantee from dubious international oil giant - Trafigura. This credit line for purchasing diesel fuel coincides with the rejection by cabinet of another funding offer, touted as 'attractive' by the CEB, for the reason that the bank offering the credit had doubtful credentials.

The latter is a clear indication that the government is getting concerned with offers that are flowing in like worms after a heavy deluge, to take advantage of Sri Lanka's inability to raise funds in capital markets.

Latest creditor

In this context it is prudent to question the background of Trafigura, the government's latest creditor. Trafigura was founded in 1993 by Claude Daupine and Eric Turkheim. The two were former employees at Glencore, the March Rich company based in Zug, Switzerland. To begin with, March Rich was, as his name suggests, a fugitive millionaire. He was indicted in 1983 along with his partner, Pincus Green by then US attorney, Rudy Giuliani, of tax evasion and illegal trading with Iran.

The pair were in Switzerland at the time of their indictment, and remained on the FBI's most wanted list until they were pardoned by US President, Bill Clinton in January 2001.

Trafigura itself has a colourful track record. The company has been embroiled in corruption scandals across the world, and even crossed paths with the UN over Iraq's oil for food scandal in 2004.

Trafigura President, Claude Dauphane just last August dropped in on Jamaican Prime Minister, Portia Simpson Miller. Shortly after his visit he transferred US$31 million to the Jamaican People's National Party, the main government constituent party.

Jamaican Opposition Leader, Bruce Gelding exposed the cheques for US$31 million to prove that the funds were illegally transferred by Trafigura, which was in fact lifting oil in Jamaica's name for a pittance and selling it elsewhere. The exposure resulted in the resignation of a cabinet minister embroiled in the scandal.

The oil giant has not always restricted themselves to bank transfers. Two South African government officials testified to receiving envelopes stuffed with cash and promises of foreign bank accounts from Trafigura in exchange for their assistance in securing a US$1.5 billion oil and trading contract. The two officials also received a gift of a vintage 1940 Bomaine de Penarde Armagne brandy, each, before the deal got underway, personally handed to them by Trafigura President, Dauphane.

The company has also tread on the toes of the US government. Trafigura was in 2006, ordered by the Texas Department of Justice, to pay US$8.9 million in fines on top of forfeiting another US$9 million. The crime: making false representation to a Houston oil company over the legality of how 500,000 barrels of Iraqi oil was obtained. Trafigura had submitted that the oil was legally obtained whereas it had actually been acquired corruptly in violation of UN allocations.

Illicit cargo

In May 2001, the Essex tanker, chartered by Trafigura, had been topped off with an extra 230,000 barrels of oil after its cargo had been inspected for export by UN officials. The illicit cargo was intercepted and seized by the US Navy after the ship's captain alerted US and UN authorities.

Trafigura was fingered as the one responsible for the dumping of 528,000 litres of toxic chemical waste at 15 sites around the West African city of Abidjan, Ivory Coast. On February 13, 2007, in response to the deaths of 10 people, and severe illness caused to 100,000 others, which was attributed to the toxic dumping, Trafigura was forced to pay out US$225 million to the Ivory Coast government.

Legendary

This quick abstract of the company's adventures is just the 'caught in the act' chapter of the Trafigura history book. Their deeds and misdeeds are legendary.

Type Trafigura into a search engine and one can find pages of court cases worldwide in which Trafigura is the respondent. Yet this shrewd, cash rich company has enormous potential to raise funds in capital markets. Its strength has been used worldwide to circumvent tender procedures, bribe officials and shove cash stuffed envelopes into the pockets of beady eyed officials of all levels in cash strapped developing countries.

It is in this light that we must consider why the CPC would deal with such a company. The Ceylon Petroleum Corporation is one of the most crucial public sector enterprises in this country. It was founded and managed under the auspices of the late eminent legal luminary, Queen's Counsel N.E. Weerasooria and the brilliant E.R.S.R. Coomaraswamy. The CPC was guided in the past by prudent managers.

These legal luminaries and managers alike would have shunned the likes of Trafigura without question. However the Chinthana government and  CPC have taken Trafigura to their bosom. Those who have the interest of the public at heart have a sacred duty to ensure that stuffed envelopes do not lead to the untimely demise of the CPC.

CPC Chairman, Asantha de Mel confirmed that a letter of credit has been opened with Trafigura for the supply of 400,000 metric tonnes of diesel, and cited the discounted price offered by the oil giant as the primary reason for dealing with them. He said that CPC could save over US$3 per barrel of diesel by virtue of the Trafigura deal. This short term saving however, comes at the cost of allowing Trafigura to stretch its notorious tentacles into Sri Lanka's borders.

Astounding debts

The Trafigura loan is just the latest in an astounding collection of debt by the CPC. Not all of CPC's loans are publicly reported, but the number of those that are not causes great alarm. The state company owes US$700 million to Iran for oil and related products. It owes another US$1 billion to Iran and others for refinery expansion projects, and has debts to banks of the order of US$200 million.

Add the Trafigura loan of approximately US$500 million and the CPC's total publicly stated debt comes up at US$ 2.4 billion or Rs. 264 billion. At a nominal per annum interest rate of 6%, the annual interest payments alone would amount to US$144 million or nearly Rs. 16 billion annually. If the principal loan is also retired, repayment would amount to US$ 240 million per year.

If these loans are paid off over 10 years, the total annual interest and principal will work out to US$ 80 million. So the country will be spending a total of US$400 million or Rs. 40 billion on the CPC's interest payments alone. One has to wonder whether the current CPC management has any understanding of how to manage a corporation with an annual turnover of over US$2 billion.