Bangladesh News

Rejecting the government’s demand for compensation for losses from the Tengratila blowout, Canadian company Niko Resources last month formally asked the government to settle the issue through an international arbitration.

Sources said following the August 15 letter from Niko, the government is making preparation to take the matter to the International Centre for Settlement of Investment Disputes.

The letter came at a time when the government is at the final stage of signing a Gas Purchase Sales Agreement (GPSA) for purchasing gas from the Feni marginal gas field, jointly developed by Niko and Bangladesh Petroleum Exploration Company (Bapex). The Petrobangla has been taking gas from the Feni field from late 2004, without fixing a price and illegally paid Niko $4 million in April 2005.

According to Niko Bangladesh Chief Brian Adolph, the GPSA that was initialled two months ago may be finalised within two weeks. The Feni field is producing gas at the rate of 15 million cubic feet per day.

Back in early 2006, the energy adviser had suggested several times before the press that Niko would be made to compensate for the Tengratila gas loss from its Feni gas production. However now it is clear that this is not happening.

The GPSA will give Niko a gas price tariff of $1.75 per thousand cubic feet.

According to Petrobangla data, Niko’s outstanding gas bill for sale of Feni gas between November 2004 and March 2006 is $14.34 million.

Sources said that on August 15, Niko sent its letter to the energy ministry, which was then sent to the law ministry for scrutiny. The law ministry recently gave its opinion in favour of going for international arbitration.

The performance of Bangladesh in international arbitration has been very poor. It loses most cases due to poor selection of lawyers and lack of seriousness. However, in the early nineties, Bangladesh won an international litigation against another Canadian company Scimitar when it proved that the company defrauded official documents to sell out an oil and gas block in Sylhet where it was a lessee. The Bangladeshi litigation team included Dr Kamal Hossain.

The nineties saw a number of litigation in the energy sector where lesser-known lawyers were involved. The country lost hundreds of millions of dollars in these cases.

Oil companies working in Bangladesh often involve top lawyers of the country — thus weakening the legal strength of the country, observed an energy ministry official.

“For instance Niko Resources hired Law Minister Barrister Moudud Ahmed’s law firm as its legal adviser for some time,” he noted, “After Moudud became the law minister, he withdrew his name as Niko’s legal adviser. But such an association makes it difficult for a lawyer to oppose its former client.”

On December 6, 2005, the Petrobangla in a letter to Niko claimed 8.9 billion cubic feet gas and a Tk 250 crore bank guarantee from the company as part of a three-stage compensation for the Tengratila gas field blow-out.

As per the findings of several probe committees on the Tengratila blow-out, Petrobangla in its letter said three billion cubic feet of gas was lost from the surface level and another 5.9 billion cubic feet was lost from the sub-surface level of the Tengratila gas field. The probe committees blamed Niko’s poor planning and operation for the two rounds of blow-outs — one in January and another in June, 2005.

In its August 15 letter, Niko said on January 16, 2006 it had responded to Petrobangla seeking clarifications on a number of matters, and denied the quantum of the claim.

The Petrobangla did not reply to that letter, Niko said, adding, “Niko now seeks your support and assistance for proposed proceedings to resolve the issue of claims arising from the uncontrolled gas releases occurring at the Chhatak (Tengratila) Gas Field on January 7, 2005 and June 23, 2005.”

Niko also sought clarification whether Petrobangla’s correspondence with the matter are actually those of the Peoples’ Republic of Bangladesh and that the claims are unresolved.

“Niko puts on record that it denies these assertions and the quantum of the claim,” it said.

Niko also proposes that Bangladesh, Bapex and Petrobangla, seeking compensation in whatever form in connection with the “uncontrolled gas release”, should be parties to the proposed arbitration under ICSID.

“Niko requests a written confirmation from Bangladesh, Bapex, Petrobangla that the respective parties agree to proceed with a settlement of this investment dispute and claims for compensation arising from the Uncontrolled Gas Release under the rules and guidelines of ICSID as soon as possible,” the letter said.