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.
Leave a Reply