The government has backtracked on its previous stand and decided not to relax further the fiscal terms of model production sharing contract (PSC) for the next round of bidding to carry out oil and gas exploration in the Bay of Bengal, a senior official said.
"We shall not incentivize the PSC terms for the next bidding round, as the latest one is already lucrative enough," Energy and Mineral Resources Division (EMRD) Secretary Md Abu Bakar Siddique told the FE Sunday.
He said the PSC terms of the 2012 offshore bidding are standard ones and those should be enough to lure investment from the international oil companies (IOCs).
Officials said the government was earlier in a position to sweeten further the PSC terms of the 2012 bidding before launching the country's next round of bidding.
But the exit of the US oil and gas giant ConocoPhillips from two deep-water (DW) blocks after inking PSCs under the 2008 bidding round prompted the government to change its stance over the issue, said officials.
If the government sweetens further the fiscal terms of the next bidding round, there might be further exit of the IOCs from the 2012 bidding round to get higher incentives, they added.
ConocoPhillips informed Petrobangla in late October of its inability to continue exploration in the DW blocks - DS-08-10 and DS-08-11 - citing them non-viable. The US firm's pull out from the blocks will be formally effective from next week.
However, before leaving the two DW blocks, the company sought an upward revision of fiscal terms in the PSC.
It sought similar fiscal terms of the 2012 bidding, which included 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, and scope to sell contractor's gas to third parties within Bangladesh.
Under the terms of the 2012 bidding round wellhead hydrocarbon price would increase by at least 2.0 per cent annually with the start of commercial production.
Gas price, for new DW blocks has been pegged to high sulfur fuel oil (HSFO) prices, and the floor price for HSFO has been fixed at US$ 100 per tonne and the ceiling price at $200 per tonne.
The gas price for the new blocks will be 130 per cent of HSFO price ex Singapore with biddable discounts.
Contractor for the new blocks under 2012 bidding round will be exempt from paying a gas transmission fee to Petrobangla, be allowed to sell up to 50 per cent of their gas production to third parties without having to go through Petrobangla, and will be exempt from paying 37.5 per cent corporate tax.
For the DW blocks under the 2008 bidding round there was no provision of annual hike in hydrocarbon prices, and exemption from paying a wheeling charge to Petrobangla to transport natural gas to end-users.
Besides, the prices of gas sold from these blocks were linked 100 per cent to HSFO oil prices, with the floor price set at $70 per tonne and ceiling price at $180 per tonne for the older DW blocks.
The gas price for these blocks was 100 per cent of HSFO price ex Singapore with biddable discounts. Contractor for the blocks would have to pay 37.5 per cent corporate tax annually, the officials further said.
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