Petrobangla asked to put aside funds for Niko arrears

An international tribunal on Wednesday ordered Petrobangla to set aside more than $30 million to pay for the gas supplied by Canadian company Niko Resources to the Bangladeshi corporation between 2004 and 2010.

The International Centre for Settlement of Investment Disputes (ICSID), a wing of the World Bank Group that facilitates arbitration of legal investment disputes between international investors and states, said Petrobangla must send the amount into an escrow account.

The legal battle started after Petrobangla withheld payments on purchases from a gas field operated by Niko, as it demanded Tk 746.5 crore in compensation from the Canadian company for twin blowouts in its Chhatak gas field in Sunamganj in 2005.

Niko then filed two cases with ICSID in 2010: the first was to clear any liability in the blowouts and the second was to realise the arrears.

Petrobangla will now sit with lawyers to find whether it can proceed with the payment, Petrobangla Chairman Istiaque Ahmad told The Daily Star yesterday.

Bangladesh's High Court issued an injunction following the blowouts, blocking the payment until the compensation issue is settled, Ahmad said. 

In September last year, the Washington-based tribunal ordered Petrobangla to make the payment after the corporation had previously failed to reply to the claims of the Canadian company.

In its latest decision on Wednesday, the tribunal said the escrow account must be opened by Niko Resources with a globally operating bank, but funds in the account will be released only as instructed by the tribunals or jointly by Niko and Petrobangla.

An escrow account is a financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled.

The funds in the account will be used for compensation if the tribunals find Niko liable for the damage resulting from the 2005 blowouts. Otherwise, the escrow arrangement will ensure that funds are made freely available to Niko.

Now the question of whether Niko is liable for the damage remains to be seen. An ICSID hearing on the compensation is scheduled to take place next month.

Ahmad hopes the verdict on the compensation case will come in favour of Petrobangla, as international experts found damage to the gas field was caused by negligence on the part of Niko.

Petrobangla said the blowouts destroyed the upper layer of the gas field completely. As a result, Bangladesh has been deprived of discovering commercially viable gas from the field. In 2008, a case against Niko was filed with the Joint District Judge 2 Court in Dhaka seeking compensation. The trial is still pending.

On Wednesday, the ICSID tribunal presided over by Michael E Schneider of Germany said Petrobangla owes Niko $25.31 million (Tk 196 crore) and about Tk 14 crore as per invoices for gas delivered from November 2004 to April 2010. Besides, it has to pay interests of $5.93 million and about Tk 4.98 crore.

Additionally, Petrobangla will have to pay at the six-month London interbank offered rate-plus 2 percent for the dollar amounts and 5 percent for taka amounts, compounded annually from September 12, 2014.

Niko welcomed the decision, terming it a favourable one.