Energy ministry urges govt to waive tax-on-tax to salvage Petrobangla
Thursday, 11 October 2007
Doulot Akter Mala
The energy ministry recently requested the government to waive the provision of tax-on-tax to salvage the Petrobangla, which is reeling under financial constraints due to mismatch between the procurement and selling prices of fuel.
The ministry requested the National Board of Revenue (NBR) to arrange a tripartite meeting of the energy ministry, Chevron and Petrobangla for resolving the long-standing dispute with Chevron on payment of tax-on-tax.
The NBR will have to issue a Statutory Regulatory Order (SRO) if it takes a decision to waive the tax-on-tax provision, an official source said.
According to the existing provision, the government charges such tax-on-tax on the amount of tax paid in a previous year along with current year's income.
The Petrobangla has sent a letter to the NBR seeking an effective move of the board in this connection.
Sources said the Petrobangla will need Tk 33.79 billion (3379.71 crore) to pay the amount of tax-on-tax for the period of 2007-2019 for the block nos 12, 13, 14 as per the Production Sharing Contract (PSC) with Chevron.
Energy ministry sources said the state-owned entity will not be able to pay the amount as it has been facing financial problems to sell a million cubic feet of gas at Tk 92 against the purchasing price of US$ 3.0 from the international oil companies (IOCs).
The Petrobangla is already facing a financial crisis to pay gas bills to the IOCs and also import of fuel at a higher rate from international market, an energy division source said.
The government has to give a large amount of subsidy to the Petrobangla if it continues with the provision of tax-on-tax, he added.
Against this backdrop, the Petrobagla has requested the energy ministry to discuss with the NBR issuance of an SRO on withdrawal of tax-on-tax, which the state-owned entity has to pay on behalf of the IOCs, he added.
On September 3, the Petrobangla chairman and the president of Chevron Bangladesh in a meeting reached a consensus on requesting the NBR to waive the provision of tax-on-tax.
The energy ministry has been waiting for legal advices to know the legal complexities that may arise, if the government initiates the move for withdrawal of the tax on tax.
The energy ministry, as a part of exploring different scopes to resolve the dispute, also sought assistance of the law ministry.
The law ministry has advised the Petrobangla to go for international arbitration against the US-based company Chevron to resolve the dispute on paying tax-on-tax to the national exchequer.
When any problem arises between the government and an IOC relating to the Production Sharing Contract (PSC) it has to be resolved through arbitration.
"The government has to settle disputes with IOCs through international arbitration, but the government will be affected seriously if it decides to do so," the Energy Division secretary ANM Nasir told the FE.
In this backdrop, the energy ministry has requested the NBR to waive the tax-on-tax provision to ease the financial burden on the Petrobangla, he added.
Chevron, which took over the Unocal operation here in 2006, paid nearly Tk 300 million (30 crore) as tax-on-tax during the last three fiscals. It has been persuading the Petrobangla to repay the amount to it (Chevron) as the Petrobangla is bound to shoulder all kinds of tax on behalf of the IOCs as per PSC.
The Petrobangla is not in a position to pay the large amount of tax on tax, accumulated in the last three fiscals, the energy secretary said.
The PSC is a special agreement between the government of Bangladesh and foreign contractors mainly on petroleum exploration and development in the country.
As per the PSC, Petrobangla has been paying corporate tax on behalf of Chevron, which is charged on income and profit from petroleum operations.
Petrobangla has been paying corporate tax at a rate of 37.5 per cent on behalf of Chevron since 2004-05 as per the related PSC.
The Chevron started commercial gas production from the Jalalabad and Moulavibazar gasfields in February 1999 and June 2006 respectively.
After the cost recovery, the profits from petroleum operations are shared by Petrobangla and Chevron as per agreement.
The Petrobangla has been purchasing 714 mmcfd gas, out of a total supply of around 1660 mmcfd, from the international oil companies.
The Chevron Bangladesh has signed three PSCs in Bangladesh, encompassing more than 10,000 square kilometres (2.47 million acres).
It is operating Bibiyana, Jalalabad and Moulavibazar fields, with the latter two fields having a combined average production of 330 mmcfd.
Chevron alone is supplying one-third of the gas consumed in the country.
The energy secretary said the Chevron is wiling to supply more gas from the Bibiyana field, but due to financial crisis the Petrobangla is unable to buy from the IOC at a higher rate.
The energy ministry recently requested the government to waive the provision of tax-on-tax to salvage the Petrobangla, which is reeling under financial constraints due to mismatch between the procurement and selling prices of fuel.
The ministry requested the National Board of Revenue (NBR) to arrange a tripartite meeting of the energy ministry, Chevron and Petrobangla for resolving the long-standing dispute with Chevron on payment of tax-on-tax.
The NBR will have to issue a Statutory Regulatory Order (SRO) if it takes a decision to waive the tax-on-tax provision, an official source said.
According to the existing provision, the government charges such tax-on-tax on the amount of tax paid in a previous year along with current year's income.
The Petrobangla has sent a letter to the NBR seeking an effective move of the board in this connection.
Sources said the Petrobangla will need Tk 33.79 billion (3379.71 crore) to pay the amount of tax-on-tax for the period of 2007-2019 for the block nos 12, 13, 14 as per the Production Sharing Contract (PSC) with Chevron.
Energy ministry sources said the state-owned entity will not be able to pay the amount as it has been facing financial problems to sell a million cubic feet of gas at Tk 92 against the purchasing price of US$ 3.0 from the international oil companies (IOCs).
The Petrobangla is already facing a financial crisis to pay gas bills to the IOCs and also import of fuel at a higher rate from international market, an energy division source said.
The government has to give a large amount of subsidy to the Petrobangla if it continues with the provision of tax-on-tax, he added.
Against this backdrop, the Petrobagla has requested the energy ministry to discuss with the NBR issuance of an SRO on withdrawal of tax-on-tax, which the state-owned entity has to pay on behalf of the IOCs, he added.
On September 3, the Petrobangla chairman and the president of Chevron Bangladesh in a meeting reached a consensus on requesting the NBR to waive the provision of tax-on-tax.
The energy ministry has been waiting for legal advices to know the legal complexities that may arise, if the government initiates the move for withdrawal of the tax on tax.
The energy ministry, as a part of exploring different scopes to resolve the dispute, also sought assistance of the law ministry.
The law ministry has advised the Petrobangla to go for international arbitration against the US-based company Chevron to resolve the dispute on paying tax-on-tax to the national exchequer.
When any problem arises between the government and an IOC relating to the Production Sharing Contract (PSC) it has to be resolved through arbitration.
"The government has to settle disputes with IOCs through international arbitration, but the government will be affected seriously if it decides to do so," the Energy Division secretary ANM Nasir told the FE.
In this backdrop, the energy ministry has requested the NBR to waive the tax-on-tax provision to ease the financial burden on the Petrobangla, he added.
Chevron, which took over the Unocal operation here in 2006, paid nearly Tk 300 million (30 crore) as tax-on-tax during the last three fiscals. It has been persuading the Petrobangla to repay the amount to it (Chevron) as the Petrobangla is bound to shoulder all kinds of tax on behalf of the IOCs as per PSC.
The Petrobangla is not in a position to pay the large amount of tax on tax, accumulated in the last three fiscals, the energy secretary said.
The PSC is a special agreement between the government of Bangladesh and foreign contractors mainly on petroleum exploration and development in the country.
As per the PSC, Petrobangla has been paying corporate tax on behalf of Chevron, which is charged on income and profit from petroleum operations.
Petrobangla has been paying corporate tax at a rate of 37.5 per cent on behalf of Chevron since 2004-05 as per the related PSC.
The Chevron started commercial gas production from the Jalalabad and Moulavibazar gasfields in February 1999 and June 2006 respectively.
After the cost recovery, the profits from petroleum operations are shared by Petrobangla and Chevron as per agreement.
The Petrobangla has been purchasing 714 mmcfd gas, out of a total supply of around 1660 mmcfd, from the international oil companies.
The Chevron Bangladesh has signed three PSCs in Bangladesh, encompassing more than 10,000 square kilometres (2.47 million acres).
It is operating Bibiyana, Jalalabad and Moulavibazar fields, with the latter two fields having a combined average production of 330 mmcfd.
Chevron alone is supplying one-third of the gas consumed in the country.
The energy secretary said the Chevron is wiling to supply more gas from the Bibiyana field, but due to financial crisis the Petrobangla is unable to buy from the IOC at a higher rate.