Law ministry suggests int'l arbitration to settle Chevron-Petrobangla row
Wednesday, 18 July 2007
FE Report
The Law Ministry recently suggested the state-owned 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.
The ministry suggested opting for international arbitration as disagreement has arised over the Production Sharing Contract (PSC), energy secretary ANM Nasiruddin told the FE Tuesday.
According to the existing provision, the government charges such tax on the amount of tax paid in a previous year along with current year's income.
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. The company has been insisting that Petrobangla should pay such tax on behalf of the company, sources said.
On the contrary, Petrobangla termed the amount of tax paid 'admitted liability' and 'other income' of Chevron, saying: "There is no scope of relating the issue of 'tax on tax' to petroleum operations-related income."
However, 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.
Against this backdrop, the energy ministry sought assistance of the law ministry to resolve the dispute, Nasir said.
"The law ministry has suggested opting for international arbitration to settle the issue, because when any problem arises between the government and an international oil company (IOC) about PSC it has to be resolved through arbitration," he said.
Chevron president Steven N Wilson Monday met the Energy Secretary ANM Nasiruddin in this connection.
"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 told the FE Tuesday.
As per PSC, Petrobangla is bound to take all kinds of tax on behalf of the IOCs, he said.
On April 5 last, the government filed a case against Chevron with a local court on the dispute regarding deduction of 4.0 per cent wheeling charge of the Jalalabad Gasfield in Sylhet.
The PSC is a special agreement between the government of Bangladesh and foreign contractors mainly on petroleum exploration and development in the country.
The state-owned entity requested the National Board of Revenue (NBR) to waive the provision of tax on tax due to its financial constraints, he said.
The Petrobangla is not in a position to pay the large amount of tax on tax, accumulated in the last three fiscals, he said.
But, the NBR has denied waiving the provision, because, according to the income tax law, it is taxable income.
In June, Petrobangla Chairman Sheikh Abdur Rashid requested the NBR to give a specific guideline in accordance with the income tax law to resolve the issue. He has sent a letter to the board in this connection.
In the letter, the Petrobangla chairman said: "As per the PSC, Petrobangla has been paying corporate tax on behalf of Chevron, which is charged on income and profit from petroleum operations."
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 Law Ministry recently suggested the state-owned 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.
The ministry suggested opting for international arbitration as disagreement has arised over the Production Sharing Contract (PSC), energy secretary ANM Nasiruddin told the FE Tuesday.
According to the existing provision, the government charges such tax on the amount of tax paid in a previous year along with current year's income.
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. The company has been insisting that Petrobangla should pay such tax on behalf of the company, sources said.
On the contrary, Petrobangla termed the amount of tax paid 'admitted liability' and 'other income' of Chevron, saying: "There is no scope of relating the issue of 'tax on tax' to petroleum operations-related income."
However, 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.
Against this backdrop, the energy ministry sought assistance of the law ministry to resolve the dispute, Nasir said.
"The law ministry has suggested opting for international arbitration to settle the issue, because when any problem arises between the government and an international oil company (IOC) about PSC it has to be resolved through arbitration," he said.
Chevron president Steven N Wilson Monday met the Energy Secretary ANM Nasiruddin in this connection.
"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 told the FE Tuesday.
As per PSC, Petrobangla is bound to take all kinds of tax on behalf of the IOCs, he said.
On April 5 last, the government filed a case against Chevron with a local court on the dispute regarding deduction of 4.0 per cent wheeling charge of the Jalalabad Gasfield in Sylhet.
The PSC is a special agreement between the government of Bangladesh and foreign contractors mainly on petroleum exploration and development in the country.
The state-owned entity requested the National Board of Revenue (NBR) to waive the provision of tax on tax due to its financial constraints, he said.
The Petrobangla is not in a position to pay the large amount of tax on tax, accumulated in the last three fiscals, he said.
But, the NBR has denied waiving the provision, because, according to the income tax law, it is taxable income.
In June, Petrobangla Chairman Sheikh Abdur Rashid requested the NBR to give a specific guideline in accordance with the income tax law to resolve the issue. He has sent a letter to the board in this connection.
In the letter, the Petrobangla chairman said: "As per the PSC, Petrobangla has been paying corporate tax on behalf of Chevron, which is charged on income and profit from petroleum operations."
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.