THE

DAILY
NEWSPAPER

Gas bubble: the saga repeated

The scope of using energy resources strategically in terms of increasing
the bargaining power of our government vis-à-vis trans-national
companies seem more limited nowadays. These trans-national companies
these days have emerged as mega corporations through merger which
has significantly contributed to their increase in terms of size, range of
activities and finally economic power in global and local economy, writes
Meer Ahsan Habib

THE Awami League-led government is likely to conclude the production sharing

contract, also known as the model PSC 2008, with the trans-national oil and gas
exploration company ConocoPhillips, which is the third largest energy company in
the US. The model PSC 2008 was initiated by the military-controlled interim
government. However, the entire process came to a halt in the face of strong
criticism from all quarters, including the Awami League. It was argued that such
issues of national interests should be dealt with by an elected government. More
than nine months into her tenure, the prime minister, Sheikh Hasina, has recently
said, at a session of the ninth Jatiya Sangsad, that her government would go
forward with its plan to lease deep-sea gas blocks in the Bay of Bengal. She
claimed that those opposing the model PSC were undermining her government’s
good intention to combat energy crisis. A few days earlier, her energy adviser
claimed that the model PSC had been the most transparent ever and could be
viewed on the Petrobangla website. The words of the prime minister and her energy
adviser tend to suggest that a band of unpatriotic people may be out to malign the
government’s effort to resolve the energy and power crisis.
Meanwhile, the parliamentary standing committee on the power, energy and
mineral resources ministry exchanged views with representatives of the National
Committee to Protect Oil, Gas, Natural Resources and Power and Port, a citizens’
forum that has been demanding amendments on some critical issues such as share
of profit and cost recovery, options for export, measurement point, options for
liquefied natural gas and transportation mechanism. But no development has so far
been made and the government seems to stick to its stance in the face of all
criticisms. Interestingly, the main opposition party has neither rejected nor
proposed any amendment to the model PSC. It seems that the government and the
main opposition party have reached a consensus on this issue.
If readers go through the model PSC, most of them would arrive at the conclusion
that it is a hard nut to crack. But questions can genuinely be raised how we can
offer 80 per cent of the reserve, 55 per cent as recovery cost when we do not even
know the actual reserve. A single sentence in the 113-page document has made
the PSC a questionable offering. To support the model PSC, examples have been
drawn from Myanmar and Nigerian PSCs which have similar profit and cost recovery
ratios. Readers will agree that both these countries are worst possible examples.
Why we do have to follow countries when one is run by the ‘military junta’ and
another with a long history of corruption? Why are we not looking at the PSC that
Indonesia has recently awarded to Niko Resources where the latter holds 50 per
cent interest?
Argument has been put forward that Sangu, the lone gas field in the Bay of
Bengal, is a very successful example of gas extraction from the sea. But Sangu is
located in shallow water which is roughly 49 kilometres into the sea from the
Chittagong shore. Petrobangla installed the pipeline through a subcontract awarded
to Halliburton. It is to be noted that Petrobangla installed its own pipeline for gas
transmission. So, it can be assumed that under model PSC 2008, Petrobangla has
to install ‘necessary facilities’, i.e. pipeline for gas transmission, the failure of which
will only lead to export in the form of LNG. So Sanjgu can no way be an example of
success story for deep-sea explorations.
Again, the model PSC stipulates that (article 30.8) an arbitration tribunal shall
conduct any arbitration in accordance with the United Nations Commission on
International Trade Law rules. According to available information, Bangladesh is still
not a member of this UN entity and, therefore, cannot expect to resolve any dispute
under its umbrella. Why such a perilous provision has been added? Though
Bangladesh has suffered at least two major blowouts, the model PSC seems to have
taken the compensation issue very lightly. Bangladesh has bilateral treaty that
enables a foreign investor to make any kind of transfer into and out of Bangladesh
without any delay. It has been alleged that under the amour of this treaty,
Occidental, the US company responsible for the Magurchara blow-out, left
Bangladesh without settling the compensation issue. The model PSC must have a
provision that if any company is found responsible for such blow-out, it can no way
leave Bangladesh before settling compensation issues.
It has been argued that there would be no export of gas from the country. Then
what necessitates the provision of export? The answer has also been given – to
attract trans-national companies. In view of the current crisis of gas and future
demand, the model PSC could provide a purchase guarantee that would make
investment of trans-national companies safe and secure. Again, the US Energy
Information Administration predicts that the US could face a gap in supply of
natural gas of about 6 trillion cubic feet by 2030. The USEIA expects LNG imports
to reach 4.36tcf a year by 2030 or about 16 per cent of total US consumption.
Interestingly, ConocoPhillips Worldwide LNG was among others to sponsor a study
titled ‘Introduction to LNG’. The study was conducted by the Jackson School of
Geosciences, University of Texas at Austin. The study suggests that US companies
should invest in the LNG value chain so that it is available in the US. So, a
correlation seems to exist between ‘LNG’ and ‘export’.
Any kind of exploration, both inland and offshore requires significant amount of
capital, the major share of which involves a very high fixed cost. This creates a
barrier to entry for both developing and least developed countries in large-scale
explorations. Bangladesh has been a fine example of such a situation. At this point,
trans-national companies usually come to rescue us. And we have traditionally
failed to monitor activities and guarantee accountability of these companies. The
model PSC has been no exception to this trend. The ultimate goal of trans-national
companies is to pursue profitability and the strategy of pursuing profitability has
often lead to undesirable practices. Here in Bangladesh, such practices are
discovered with a regular interval of five years with change in power.
In this regard, it would not be irrelevant to inform readers that an US company,
Oceanic Exploration, filed a multibillion dollar lawsuit in 2004 against ConocoPhillips
claiming that the latter had bribed high officials of the East Timor government to
secure the Timor Sea Treaty and a favourable tax regime. Although the lawsuit was
finally dismissed in 2008, it portrays a scenario of games that trans-national
companies play in winning contracts. Successive governments have failed to
negotiate any such agreement on better terms since resources are located in our
territory and trans-national companies may only process these if they have access
to resources.
The scope of using energy resources strategically in terms of increasing the
bargaining power of our government vis-à-vis trans-national companies seem more
limited nowadays. These trans-national companies these days have emerged as
mega corporations through merger which has significantly contributed to their
increase in terms of size, range of activities and finally economic power in global
and local economy. In this context these companies have been able to a great
extent to politically influence democratically elected governments in countries like
Bangladesh in pursuit of their own interest, potentially overriding public interest.
The current government needs to realise that two-thirds majority does not
necessarily reflect people’s aspiration towards this model PSC.