Sovereign hedging lessons

The big oil-hedging losses at Sri Lankan state-owned refiner Ceylon Petroleum Corporation provide another salutary lesson in the proper use of derivatives. Is the situation reflective of state-owned energy companies as a group? By Joe Marsh

Potential hedging losses of $1 billion on a mark-to-market basis would represent a significant problem for any institution. When the company in question is government-owned and based in a country where very little use is made of derivatives, the problem becomes an even bigger issue.

Sri Lankan state oil refiner Ceylon Petroleum Corporation (CPC) saw the resignation of its chairman and suspension of its finance head late last year, after it emerged in November that the company's crude oil hedges