The government is learnt to be weighing a proposal from US-based ConocoPhillips for amending the existing production-sharing contract (PSC) to award the company higher incentives.
Energy experts maintain that any renegotiation of the foreign firm's terms would prove ruinous for the country's energy sector that holds huge potential for the opening up of vast avenues in the Bay of Bengal.
The oil giant is allegedly pressing the government high-ups for an upward revision of fiscal terms in the PSC for its two deep-water blocks in the Bay: DS-08-10 and DS-08-11.
Company officials have discussed the matter with State Minister for Power, Energy and Mineral Resources Nasrul Hamid in pursuance of the plea.
The country has never amended PSC in the past, apart from inking a supplementary agreement to the PSC in 1998 for a 5 per cent additional share of gas discovered in two blocks of Magurchhara gas field in northeastern Sylhet district after gas blowout there, said a senior Petrobangla official.
"Amending the existing PSC with ConocoPhillips to offer fiscal benefits will be unethical," Professor M Tamim of Petroleum and Mineral Resources Engineering of Bangladesh University of Engineering and Technology (BUET) told the FE Monday.
He said ConocoPhillips took part in the 2008 bidding being aware of the terms of model PSC and inked deals in June 2011 to explore hydrocarbons in the two deep-water blocks on the basis of the model PSC.
Under the PSC, the US firm is contractually bound to carry out the minimum exploration works under the fiscal terms as offered, said Mr Tamim, who was special assistant to Chief Adviser of the former Caretaker Government and looked into energy issues.
If the fiscal terms are deemed irrational to ConocoPhillips, it can quit the job, sharing all the output of its exploration activities with the state-owned Petrobangla, he said.
Criticising the move towards amending PSC, Professor Nurul Islam of BUET said the outcome would be enormous if it is done.
All other international oil companies (IOCs) operating in Bangladesh will then press the government for upward revision of fiscal terms of their existing PSCs, too.
This, in turn, may lead to a chaos in the sector and fuel up the natural gas tariffs, said Mr Islam, the architect for establishing Gas Development Fund, about the ultimate outcome of such arm-twisting.
"Amending terms from the original tender documents to ensure benefit for a particular party is an offence," he said.
Officials said ConocoPhillips is demanding 2.0 per cent hike in natural gas tariffs annually and raising the rate to a level similar to that of neighboring Myanmar, without making mention of the Myanmar tariffs.
In a bid to maximize the gains, the company also wants that Bangladesh build a 280-kilometre sub-sea pipeline to carry the natural gas from the two blocks to the shore.
The US firm is also interested to get Bangladesh's lone state-owned oil-and-gas-exploration company, Bangladesh Petroleum Exploration, and Production Company Ltd (Bapex) as partner for these two deepwater blocks, said sources.
The PSC with the US firm is Bangladesh's first deepwater exploration contract.
To determine natural gas price for these two deep-water blocks high-sulfur fuel oil (HSFO) price has been fixed at US$ 70 per tonne as the floor price, and $180 per tonne as the ceiling.
ConocoPhillips is bound to pay corporate taxes on its own under the PSC.
It will not be able to export piped gas from the two gas blocks deep into the sea.
The company, however, can export gas only in liquefied natural gas (LNG) form provided it gets consent from Petrobangla.
Petrobangla will have the first right of refusal in this matter. If Petrobangla does not accept to purchase LNG within six months, the contractor will have the right to sell off its share on the domestic market to a third party.
ConocoPhillips earlier refused to ink a PSC with Bangladesh for oil and gas exploration in shallow-water block SS-07, which was offered in 2012 bidding round, seven months after signing an initial deal on the PSC.
It has declined to sign the final PSC for block SS-07 on the plea that the block lies in deep water and not shallow water as stated by Petrobangla, which makes the existing fiscal terms unfavorable, said a Petrobangla official.
ConocoPhillips said that after further evaluation, it had found that block SS-07 located offshore Bangladesh in the Bay of Bengal was no longer competitive in the company's portfolio, and hence had notified Petrobangla that it could not sign the PSC under the current terms.
The company, together with Norway's Statoil, however, submitted bids in January for all the three deep-water blocks offered in the 2012 licensing round.
Bids for those blocks are currently under evaluation by Petrobangla.
Bangladesh in 2012 revised upward fiscal terms in the model PSC for the three deepwater blocks.
The revisions include significant fiscal and commercial improvements, such as increased gas price, annual price escalation, enhanced annual cost-recovery limit, tax waiver for contractor for the entire project life, no transmission tariff, scope to sell contractor's gas to third party within Bangladesh.
Seeing the 'sweetened' fiscal terms, ConocoPhillips together with Norway's Statoil submitted bids in January 2013 for all the three deepwater blocks: DS-12, DS-16, and DS-21. The blocks were put on offer in the 2012 licensing round under revised fiscal terms, said sources.
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