Cairn seeks changes in PSC for selling gas at higher rate

---

M Azizur Rahman
Cairn Energy has sought to amend its contract with Petrobangla as part of a move to sell gas to private companies at a rate far higher than the government's fixed price, officials said Thursday.
The Scottish company has struck gas in Magnama and Hatia fields in 2007-8 and under the agreement it signed with the state energy corporation Cairn must sell gas at a maximum US$2.90 per unit.
The company has now sought amendments to the deal so that it can fix the price on its own -- a move critics say aimed at cashing in on the country's acute energy crisis.
"Cairn officials came to me last week and said that they want some amendments to the PSC," Petrobangla chairman Dr Hussain Monsur told the FE Thursday.
He did not elaborate but officials said Cairn now wants to be freed from the government "price shackle" in a bid to make maximum gain from the gas crisis."
Under the PSCs, foreign companies discovering gas in Bangladesh must sell gas to the government and at a price pre-fixed by the Petrobangla.
But Cairn had already won the right to sell gas to private companies, bypassing the government, as it has argued that gas discovery in the two shallow-water structures would cost more.
"They have now said that they want amendments to the deal to get market price for their discovered gas," an official said, adding the government's maximum price of $2.90 is now one-third of global rate.
Cairn has stressed a quick decision from Petrobangla, tagging further exploration and development of the two fields to the PSC amendments, according to officials.
Officials said if the government gives in, it will set a bad precedence, which will be capitalised by other foreign firms exploring natural gas in the country.
Cairn's demand has also caught the Petrobangla on wrong-foot.
"If we don't allow Cairn to set its own prices, it won't do exploration work in the coming winter, which will further aggravate the current gas crisis,|" another official said.
"But if we amend the deal in line with Cairn's wish, more foreign companies will come with similar demand, which will have terrible consequence on our industries," an official said.
Cairn had earlier hinted that it would get much higher prices if it were allowed to sell their output to private companies at a negotiated price.
If allowed, Cairn would be the first foreign firm in Bangladesh to get the rights to sell gas directly to the private sector.
Currently, all foreign firms including US giant Chevron and Irish Tullow sell their gas output to Petrobangla, which then sell it to public and private companies through state-owned distribution firms.
Cairn also sells gas from its Sangu field complying with the same rules. Sangu is the country's lone offshore gas-field located in block No. 16 where the Magnama and Hatia structures are also situated.
Sangu produces around 35 million cubic feet of gas daily (mmcfd), down by more than 70 per cent since 2006.
The abrupt fall in Sangu output led to closure of scores of gas- fired industries and halting of huge amount of fresh investment in and around the port city of Chittagong.
Chittagong-based industries including the Karnaphuli Fertliser Company Ltd (KAFCO) and the Korean Export Processing Zone (KEPZ) are seen as the potential buyers for Cairn's Magnama and Hatia gas.
Cairn has recently completed three-dimensional (3D) seismic surveys in the two structures and expects to announce final interpretation of gas findings within months.
Cairn found gas in Magnama and Haitiya during exploration drilling in the winter of 2007-08. It, however, did not disclose the size of the reserves.
The company and Australia's Santos now have 37.5 per cent stake each in the Sangu and 37.5 per cent each in block No. 16.
The remaining 25 per cent stake in the two structures is owned by US-based Halliburton Energy.
Cairn also holds a 45 per cent stake in block No. 7 operated by Chevron.