EditorMollah M Amzad Hossain

Advisory EditorAnwarul Islam TarekSaiful Amin

International EditorDr. Nafis Ahmed

Contributing EditorSaleque SufiDr. A Rahman

Managing EditorAfroza Akther Pervin

Design & GraphicsMd. Monirul Islam

PhotographyBulbul AhmedFarzana Karim Chowdhury

Magazine AdministratorAKM Shamsul Hoque

ProductionMufazzal Hossain Joy

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Circulation AssistantKhokan Chandra Das

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PriceBangladesh: Tk 25, SAARC: US$ 3,Asia: US$ 5, Europe: US$ 6, NorthAmerica, Africa & Australia: US$ 7.5

The Bangladesh PSC hasensured the ownership of the

people on the oil and gas resourcesas well as protected the sole author-ity of Petrobangla in controlling theuse of oil or gas to be extracted. Thecontracting company under the PSCdoes not have this authority.Associate Professor of Law ofChittagong University Dr AbdullahAl Faruque has expressed the viewin an exclusive interview with EP.

43

9At present four IOCs are pro-ducing gas from fiveBangladesh gas fields. The

Jalalabad, run by US companyChevron, produces 150 MMCFD.Bangladesh’s share is 78 percent ofthe gas while Chevron 22 percent.If the production is more than 150MMCFD and less than 300MMCFD, Petrobangla owns 80 per-cent and the rest 20 percentChevron. Bangladesh gets 83 per-cent if the production at Jalalabad ismore than 300 MMCFD.

angladesh has finally made a long awaited deep-sea gas exploration dealwith US company ConocoPhillips awarding them two blocks in the Bay ofBengal. Although it was done through a standard production sharingcontract, a section of citizens raised protests and even called hartal sayingthat the country’s interests have not been protected in the deal. Theyparticularly protested the export option arguing that the country would bedeprived of much of the gas to be explored. On the other hand, thegovernment has not made a clear cut statement to refute this particularallegation. Therefore, the debate is going on. And the people are a bitconfused. They don’t know whether the protests are justified or thegovernment is correct. The situation arose just because of lack oftransparency in making the deal. The government must make it clear all theprovisions made the contract and let people know that the country’s interestsare well protected, otherwise the government will have to face agitationwhile making such deal in future. The country badly needs gas and there isno alternative to explore all the options to increase gas production.

B

COVER

FORTNIGHTLY MAGAZINE, VOL 9, ISSUE 2, JULY 1-15

The Energy & Power

had introduced Green

Page marking its step-

ping into the 7th year to

campaign for efficient

use of energy, energy

conservation and using

environment-fr iendly

energy. Encouraged by

the readers and

patrons, the EP decided

to continue with the

pages as it is stepping

into the 8th year. The

EP would make its best

effort to keep up the

campaign

Page: 31, 33, 34

Green Page

5 WORLD WATCH

Latest Development in World

6-7 SNAPSHOT

Latest Development

9 COVER

PB`s PSC with ConocoPhillips

COVER PLUS

15 PSC: Setting the Records Straight

16 Negative Intentions & Reality

DEBATE

19 Disclose PSC, Clear Confusion

SPECIAL ARTICLE

27 Offshore PSC - Cynicism Vs. Facts

COVER ARTICLE

29 PSC Amendment & Offshore Petroleum Exploration

GREEN PAGE

31 Call for Green Energy Fund to Enhance Energy Capacity

33 BD Achieves Marked Growth in Renewable Energy Use

34 Solar Power Must For New SME, Agriculture Branches: BB

ARTICLE

35 Ailing Electricity Sector

REPORT

37 Samutang Gas Field Goes Into Operation

38 Govt to Set Up Plant to Generate Power from Gas

Condensate

SPECIAL REPORT

39 Fix Energy Problem to Attract FDI

REGION

41 SAARC Power Grid

INTERVIEW

43 Dr Abdullah Al Faruque

Associate Professor of Law of Chittagong University

TECHNOLOGY

46 Protecting A Supercomputer From Power Grid

Disturbances

5

WORLDWATCH

The Asian DevelopmentBank (ADB) has agreedto provide financial

assistance of US$ 120 million for the implementation ofSustainable Power Sector Support Project in Sri Lanka inline with the government’s target of providing electricityto all households by end of 2012.

The project will contribute to a reliable, adequate andaffordable power supply for balanced and sustainableeconomic growth in Sri Lanka and increase electricityconnections in rural areas, specifically in the Eastern,North Central, Southern and Uva Provinces.

In this connection, Secretary, Ministry of Finance andPlanning, on behalf of the Government of Sri Lanka andon behalf of ADB, Candice McDeigan Head PortfolioManagement Unit of the Sri Lanka Resident Mission ofADB, signed two Loan Agreements.

The total investment cost of the project is US$ 162.03million (Rs 17,553 million) of which US$ 42.03 million(Rs 4,553 million) will be provided by the government ofSri Lanka. The total loan from the ADB includes a loanof US$ 10 million (Rs 1,083 million) from the AsianDevelopment Fund (ADF) and a loan of US$ 110 million(Rs 11,917 million) from Ordinary Capital Resources(OCR).

The Ceylon Electricity Board (CEB) and SustainableEnergy Authority (SEA), under the Ministry of Power andEnergy will be the project implementing agencies. Theproject is scheduled to be completed by April 2014.

ADB PledgesUS$ 120M For SL

I n d i a ' sC o m m e r c eMinister called

for more cooperation with the United States on nuclearenergy and brushed aside talk of scrapping ambitiousplans in the wake of Japan's Fukushima crisis.

On a visit to Washington, Commerce Minister AnandSharma said he has faced questions on whether Indiashould rethink its nuclear energy policy and respondedflatly: "My answer was no."

India's fast-growing economy is heavily dependent onhighly pollutant coal and imports of crude oil. Less thanthree percent of India's electricity comes from nuclearpower but it hopes to raise the figure to 25 percent by2050. France, Russia and private US and Japanese firmsare in fierce competition to sell new reactors to India.

India to Press Aheadon Nuke Power

The Pakistan feder-al government hasapproved an energy

security action plan that targets an end to the power crisisby 2030.

The plan also envisages production of additional8,800MW through nuclear power plants coupled withpromotion of alternative energy resources for production.

Officials said that a new nuclear power plant will start pro-ducing 340MW in June while construction on two similarprojects is also under way. Another 1,000MW project isproposed to be set up in Karachi, according to the plan.

They said that talks with nuclear plant suppliers are inprocess for the promotion of nuclear power plants inPakistan. The government is also trying to encourage localinvestors and companies in energy production.

The officials said that the plan will help Pakistan overcomethe prevailing energy crisis and also reduce energy cost.The officials said that sites for more nuclear power plantswere being reviewed.

They added that the plants will bring billions of rupees ofinvestment amid helping social and economic develop-ment in Pakistan.

Power Crisis to Endby 2030 in Pakistan

Electricity utilitiesin India increasedimports of coal by

43 percent in May to 2.97 million metric tons from a yearearlier, reported India Coal Market Watch.

Imports in April were at 2.34 million tons.

The Central Electricity Authority, a supervisory body, hasset a target of 35 million tons of imported power-plant coalfor the year ending March 2012, the newsletter said.

Domestic coal supplies to power plants fell 7 percent to28.54 million tons in May from a year earlier.

India Increases CoalImports by 43%

Sri Lanka willset up a body todeal with radia-

tion emergencies that may arise in the event of any acci-dent at nuclear power plants in neighboring India.

The cabinet approved the setting up of the AtomicEnergy Regulatory Council, said a government state-ment.

"Since Sri Lanka is in close proximity to the nuclearpower stations in south India, it has been found neces-sary to establish an independent regulatory arm in keep-ing with the advice given by the International AtomicEnergy Agency," the statement said.

Sri Lanka and India are divided by a narrow strip of sea,known as the Palk Straits. The recent nuclear disaster inJapan put Sri Lanka on alert over the threat the islandmay face if a similar disaster occurred in India.

The government will replace the country's existingAtomic Energy Act in order to introduce nuclear powertechnology in the country, the statement added.

Sri Lanka to MonitorRadiation from India

6

SNAPSHOT

Chevron to Drill 18Wells to IncreaseGas ProductionChevron, the USAbased oil and gas

Company, is set to drill 16 development wells and twoexploratory wells at Jalalabad, Moulvibazar and Bibiyanagas fields in the next one year.

The international oil campany has been asked to increasegas production by 1,000 mmcfd from these three fields by2012 to enhance country's gas output from 2200 to 3300mmcfd.

"Chevron will drill 16 development wells in Jalalabad,Moulvibazar and Bibiyana, however two exploratorywells would be drilled at Jalalabad and Bibiyana to assessthe reserve of these two fields," said Petrobangla ChairmanDr. Hossain Monsur.

According to Petrobangla, Chevron submitted a US$ 350million capital budget to carry out the plan.

"To conduct the drilling operations we need one year aswe have to construct concrete drilling pit, mobilizedrilling rig and associated equipment, management andtreatment of waste and decommissioning of rig and mate-rials," said a Chevron official.

He said the crucial issue related with this developmentplan is pipeline constraint.

According to the Petrobangla, to improve the gas flowfrom north to south it needed to implement some pipelineproject.

Chevron is producing nearly 920 mmcfd from three gasfields in Moulvibazar, Jalalabad and Bibiyana which is halfof the country's daily gas production

Chevron to Drill 18Wells to IncreaseGas Production

The state-owned oilcompany-PadmaOil Company

Limited-has submitted all necessary documents to thesecurities regulator related to resumption of its shares trad-ing.

A top official of the Securities and Exchange Commission(SEC) said the regulator will discuss the issue at its nextmeeting.

On March 30 last, Dhaka Stock Exchange (DSE) suspend-ed the share trading of Padma Oil as the Board ofDirectors of the company halted its earlier recommendeddividend by breaching the securities rules.

In December 2010, the board of the company recom-mended 100 percent cash dividend for the year that endedon June 30, 2010.

On January 2, 2011, the High Court issued a three-monthstay order on distribution of recommended dividends fol-lowing a writ petition filed by an investor challenging thedeclaration.

Then on March 21, 2010, the board halted its previousdeclaration and recommended 50 per cent cash and 50per cent stock dividends.

Under the circumstances, the DSE suspended the tradingof the company's shares following a directive of the SEC.

Padma Oil SubmitsPapers to SEC

The state-ownedTitas GasTransmission andD i s t r i b u t i o nCompany Ltd

(TGTDCL) is going to undertake a project to improve itsgas supply efficiency with the consultancy support ofPegasus International (UK) Ltd.

The TGTDCL has signed a deal with the UK-based com-pany on June 14.

The total estimated cost of the 'Supply EfficiencyImprovement Project' is over Tk 555.20 million. Amongthe cost, the Asian Development Bank (ADB) will provideover Tk 347.02 million, and Bangladesh government willprovide over Tk 208.18.

TGTDCL Managing Director Muhammad Abdul AzizKhan said that they were going to run the project toimprove gas supply efficiency in Dhaka and adjacentareas under the Titas coverage, and ensure cost-effectiveuse of gas.

He said the project envisages improvement of supply effi-ciency through reducing wastage of gas by domestic cus-tomers, combating gas pilferage by dishonest industrialconsumers and captive power plants, and ensuring effi-cient utilization of gas in gas-based industrial units andpower generation.

Titas Gas LaunchesProject to ImproveGas Supply

Energypac PowerG e n e r a t i o n(EPGL), one of

the leading companies in energy and power sector ofBangladesh, has signed a contract with Chittagong PortAuthority (CPA) for installation, testing and commissioning of20 High Mast Lighting System at different locations of theyard.

Captain Anwarul Hoque Chowdhury, (E), psc, BN, MEMBER(Engineering) and Commodore Anwarul Islam, ndu, afwe,psc, BN, Chairman, CPA signed the deals.

On behalf of Energypac Power Generation Ltd. Engr. Md.Irteza Hossain, Head of Project Division (BPR) signed thepaper.

Engr. Abdul Khaleque, DGM, Energypac Engineering Ltd,Engr. Md. Abu Ismail, Director (Elec & Mech), Chittagong PortAuthority and other key officials from both organizationswere also present on the occasion.

Energypac PowerSigns Deal with CPA

7

SNAPSHOT

The gov-e rnmen th a sapproved

proposals of two power projects for receiving foreign funds,involving $45.5 million.

Standard Charted Bank will provide the loans in foreign cur-rency, said a Bangladesh Bank (BB) press release.

The scrutiny committee for foreign loans, headed by BBGovernor Atiur Rahman, gave the approval.

United Ashuganj Power Limited is taking $26 million loanrepayable in 34 months and Khanjahan Power CompanyLimited has got a sanction of $19.5 million for 56 monthsrespectively at an interest rate of LIBOR+4.0 per cent.

Two Power Projects GetNod for Foreign Funds

The gov-e r n m e n thas decid-

ed to provide prospective consumers with over 600,000new electricity connections by December this year.

The decision was taken at a meeting of the Ministry ofPower, Energy and Mineral Resources at BangladeshSecretariat, with State Minister Muhammed Enamul Huq inthe chair.

Prime Advisor Dr Tawfiq-e-Elahi Chowdhury, Power DivisionSecretary Md Abul Kalam Azad and managing directors ofpower distribution agencies attended the meeting.

Govt to Provide 6LacsNew Power Connections

B a n g l a d e s hP e t r o l e u mCorporation (BPC)will pay 3.30 per-

cent premium to Kuwait Petroleum Corporation (KPC) forthe next six months.

"We will pay 3.30 percent premium to KPC for July -December period. However, they (KPC) asked for five per-cent premium", said a top BPC official.

The new rate will be effective from the month of July.

BPC has a deal with KPC under which the Kuwaiti oil com-pany will provide 520,000 tonnes of diesel at a premium ofUS$3.15 per barrel and 140,000 tonnes of jet fuel at a pre-mium of $4.40 per barrel. Kuwait is the major supplier ofdiesel and jet fuel to Bangladesh. BPC settled the premiumrate issue last week at Dubai under which the KPC willensure the supply of diesel on 60-day delayed paymentbasis during July-December 2011.

BPC officials said it has also fixed the premium withEmirates National oil company and Malaysian OilCompany at the same rate.

BPC projected to raise its annual oil import by over 40 per-cent to 4.85 million MT from the current 3.70 million MTfrom next year as the country has moved to tackle thepower crisis installing diesel- based power plants.

BPC to Pay 3.3%Premium to KuwaitPetroleum

Bangladesh KnitwearManufacturers andExporters Associationurged the governmentto reduce the prices of

furnace oil to be used as an alternative to high-cost fossilfuel.

In a statement, BKMEA also asked the government to keeptax at source at 0.40 percent instead of pushing it up to 1.50percent on all exportable goods and withdraw 15 percentand 9 percent value-added taxes on rented industrial hous-es, effective from June 11, 2009 and January 1, 2011.

The leaders of the association at a meeting at NarayanganjClub welcomed the budget proposal for fiscal 2011-12 forproposing cuts in duty on import of chemicals used for run-ning the effluent treatment plants, increasing the period ofbond license renewal from one year to two, special incen-tives to the knitwear sector and duty reduction on cottonwaste, potassium nitrites and potassium carbonates.

BKMEA Asks Govtto Cut FurnaceOil Prices

S t a n d a r dChartered Bankhas become thesole facilitator fora 5-year term

financing of $20 million for the Khanjahan Ali PowerCompany Ltd for its 40 MW power plant in Noapara ofJessore.

Jim McCabe, CEO of Standard Chartered Bank,Bangladesh, and K. M. Ahsan Shamim, Director ofKhanjahan Ali Power Company Ltd, signed a deal in thisregard at the head office of United Group in the cityrecently.

Hasan Mahmood Raja, Chairman of United Group,Ayesha Aziz Khan, Finance Director and Jafer UmmeedKhan, Director, of Summit Group, VenkataramananAnantharaman, Head of OCC, India and South Asia,Nirukt Sapru, Head of Growth Markets, South East Asiaand South Asia, Milan Mehra, Head of RegionalStructured Trade Finance and Financing Solutions, AbrarAnwar, Head of Origination and Client Coverage,Mahfuzur Rahman, Head of CTA, Arif Ainul Suman andDirector-CTA, Syed Shadman Rahim, Associate Director,Financial Market Sales of Standard Chartered Bank, werealso present at the signing ceremony.

Jim McCabe said “We are proud to be the sole financer forthis 40 MW power plant and once again be a partner inprogress for Bangladesh.”

United Group Chairman Hasan Mahmood Raja said “Weare very pleased to have contributed to country’s powersupply and we thank Standard Chartered Bank who cameforward to finance a viable project and has provided usthe right financial package with pertinent currency andinterest rate hedging tools.”

Standard Charteredto Finance $20mPower Plant Project

9

COVER

Production Sharing Contract (PSC) is again amatter of national debate in the country afterthe state-run Petrobangla signed PSCs with

US-headquartered ConocoPhillips for oil and gasexploration in two deepwater gas blocks offshoreBangladesh in the Bay of Bengal.

Such a debate in Bangladesh is nothing newalthough it’s not between the two major politicalparties who take opposite position to almost everyother issue.

Once again the opposition came from a smallgroup of people who have extended the name oftheir organization from oil-gas protection commit-tee (OGPC) to “national committee to protect oil-gas, natural resources and power-port”.

Even the Prime Minister Sheikh Hasina herselfreacted to their claim that the national interest wasnot protected in signing the deal with theConocoPhillips that the group claimed to be

Zahid Newaz Khan

“anti-state”. She also accused the com-mittee of not taking the side of peoplewhen the country was facing severecrises of electricity and gas that her gov-ernment inherited from the past regimesand is trying hard to solve it.

Under the PSCs, ConocoPhillips wonthe right to conduct hydrocarbon explo-ration in DS-08-10 and DS-08-11 span-ning a total area of 5,158 square kilo-meters (1,992 square miles), 280 km(174 miles) off Chittagong, where waterdepths are 1,000-1,500 meters.

The US-based company can explore70% of DS-08-10 and 85% of DS-08-11,with the rest in limbo until the maritimeboundary dispute with India andMyanmar is resolved.

The OGPC’s arguments are:1. Country should explore its naturalresources by its own companies insteadof PSC.2. If gas is discovered it will be exportedin the form of LNG.3. Bangladesh has to purchase gas fromConocoPhillips at a higher price.4. Offshore natural resources will bedestroyed at the hands of the foreigners.5. The country will not be able to realizecompensation in case of any accident.6. The offshore exploration will createpolitical and military tension in theregion.

However, the government refused eachand every apprehension and claimedthat every clause of the PSC protectedBangladesh’s interest and benefit.

PSCPSC is an agreement between a govern-ment and an international oil company(IOC) for exploration, development andproduction of oil and gas.

Countries not having financial and tech-nical capacity to explore oil and gas signsuch PSCs. Even some countries, includ-ing Saudi Arabia, having the capacity gofor such contracts to avoid the risk ofinvestment in case “no discovery”.

One can take even the example ofBangladesh. The IOCs invested US$ 2.2billion in Bangladesh since 1992. But,the companies had the scope of costrecovery of only US$ 1.25 billion asthey didn’t find any recoverable reservesby the investment of rest US$ 1.0 billion.

Had Bangladesh invested the money thecountry would have counted the billiondollars simply as wastage.

The critics of PSC argue that Bangladeshcould have hired the technology for off-shore exploration. Apparently it soundsgood. But, in making the point they for-get the fact that the country not onlylacked in technology but also inrequired huge investment. If the technol-ogy and human resources are hired andno discovery takes place finallyBangladesh would have bear the hugeinvestment cost. In case of PSC the costis totally of the IOC.

Also, globally PSC is now the mostaccepted way of international contractsfor oil and gas exploration as it ensuresthe ownership of the state. On the otherhand, the previous practice of conces-sion and royalty made the companyowner of a block.

Moreover, the model PSC of 2008 underwhich Bangladesh signed PSC withConocoPhillips has certain changescompared to previous ones that protect-ed more interest of the country.

Cost RecoveryIf an IOC, under a PSC, discovers oil andgas by totally its own investment, and ifthe reserve is commercially viable forproduction the company again by itsown investment goes for developmentand production program. Once the pro-duction starts, the company gets a shareof oil or gas for cost recovery of itsinvestment.

The company is bound to sell to the gov-ernment at the price mentioned in thePSC from its share found as cost recov-ery. The rest is distributed between thegovernment and the IOC as profit gas.

The PSC signed with the ConocoPhillipsis more balanced as the 2008 modelPSC, prepared after reviewing the PSCsof India, Pakistan, Malaysia, Vietnam,Trinidad, East Timor and some othercountries, has two major developments:1. It ensured that the contracting com-pany will pay all taxes and duties.According to previous PSCs,Petrobangla had to bear the tax-dutycosts.

2. It cancelled the provision of negotia-tions alongside bidding. The model PSC

ensured selection of a company onlythrough competitive bidding interna-tionally.

The critics, including the OGPC,claimed that 80 percent of the gas willbe owned by the IOC while 20 percentby Bangladesh. A simple data will clari-fy that it’s a misconception.

According to the daily gas report ofPetrobangla, the supply on June 21 was2002 MMCFD. Of the supplied gas, 953MMCFD (48 percent) was by NOCswhile 1,048 (52 percent) MMCFD byIOCs. Bangladesh is getting 60 percentof the IOCs supplied gas as profit gas.

Bangladesh’s ShareAt present four IOCs are producing gasfrom five Bangladesh gas fields. TheJalalabad, run by US company Chevron,produces 150 MMCFD. Bangladesh’sshare is 78 percent of the gas whileChevron 22 percent. If the production ismore than 150 MMCFD and less than300 MMCFD, Petrobangla owns 80 per-cent and the rest 20 percent Chevron.Bangladesh gets 83 percent if the pro-duction at Jalalabad is more than 300MMCFD.Bangladesh is getting higher share in theproduced gas as the field was discov-ered earlier. Almost similar sharing takesplace for Moulvibazar as PSC wassigned with the Chevron after the fieldwas identified.

In Moulvibazar field, the country gets 70percent and Chevorn 30 percent if theproduction is 150 MMCFD. If produc-tion is 150 MMCFD plus, but less than300 MMCFD, Bangladesh andChevron’s share is 73 and 27 percentrespectively. And Bangladesh’s sharebecomes 75 percent when the produc-tion is 300 MMCFD plus.

But, Bangladesh’s share is not less in thegas fields discovered by the IOCs them-selves.Bibiyana was discovered by Chevron.According to the PSC, Bangladesh owns68 percent and Chevron 32 percent for300 MMCFD plus production. At pres-ent, the production is much higher thanthe 300 MMCFD mark.Not only with Chevron, similar sharingtakes place for other IOCs, too.

Bangladesh’s share in Bangura field ofIrish company Tullow during the cost

11

recovery period was 61 percent. Afterthe cost recovery, the country gets 66-85percent, subject to volume of produc-tion.

In offshore Sangu, Bangladesh andAustralian Santos share 50 percent eachif the production is up to 100 MMCFD.If the production is up to 150 MMCFD,Bangladesh gets 55 percent while 65percent for production up to 250MMCFD, 75 percent for 350 MMCFD,85 percent for 450 MMCFD and 87 per-cent for 450 MMCFD plus production.

Sharing with ConocoPhillipsAccording to the PSC, ConocoPhillipswill get at best 55 percent of total pro-duced gas during the cost recovery peri-od of its investment. The rest 45 percentwill be distributed between theConocoPhillips and the Petrobangla asprofit gas. The distribution will takeplace as per daily production.

After the cost recovery, Petrobangla willget 50 to 80 percent of total gas and 60to 85 percent of oil or condensate.

Another argument by the OGPC is that ifBangladesh can invest for pipeline whynot for exploration. Apparently this is agood point. But, again it’s the questionof risk investment.

The question is as to when Bangladeshwill spend money from the offshorepipeline. The answer is when there is acommercial discovery, not before that.So, it’s not a risk investment as theinvestment will take place only when it’scertain that there is enough gas reserveand Bangladesh can transmit its profitgas (55%-80%) or from the portion ofConocoPhillips which is bound to sell itsshare to Bangladesh from the offshorefield.

While pipeline investment is totally risk-free, the investment for exploration is atotal gambling. After spending millionsof dollars for exploration the countrycan get nothing. But, if the investment ismade by an IOC under the PSC,Bangladesh doesn’t need to be worriedat all.

Price of GasThe price of gas to be purchased fromConocoPhillips in case of a commercialdiscovery has been fixed based on highsulfur fuel oil (HSFO) price in Singaporemarket. However, highest price of per

metric ton HSFO has been fixed at US$180 (ceiling price) and lowest price US$70 (floor price).

Again the price of HSFO in Singaporemarket is always higher than that is men-tioned in the PSC. It will be crystal clearif one considers the recent price ofHSFO in Singapore which is from US$550 to US$ 600.

Price of HSFO in all the PSCs signed byBangladesh is lower than the actualprice. And that’s how the country alwaysgets gas at much lower price than itsinternational price. The ConocoPhillipsis not an exception, too.

LNG & Export RowThe OGPC and some civil society mem-bers in one side argue that Bangladeshwill have to buy gas fromConocoPhillips at a higher price, and onthe other they say Bangladesh will notbe able to purchase gas from the IOC asthe company will go for export as theBangladesh’s offer is lower than theprice the US company will get fromexport.

Both versions are based on misconcep-tion.

From the pricing analysis, based onHSFO price in Singapore market, it’sclear that Bangladesh is getting gas fromthe IOCs at a much lower tariff than theinternational market. It will also get gasfrom ConocoPhillips, if any offshore dis-covery by them, at a much lower price.

On the other hand, the ConocoPhillipshas no option of exporting gas ifBangladesh buys from them.

According to the PSC, the gas theConocoPhillips will get for cost recoveryand as profit gas, has to be offered to sellto Bangladesh under the price men-tioned in the PSC. Petrobangla will getsix months time to make a response. IfPetrobangla is not willing to buy the gas,the ConocoPhillips will then be able toinitiate steps to sell the gas to a thirdparty within the country.

If the two options, at first purchase byPetrobangla and then domestic thirdparty, are exhausted only then the com-pany will get the opportunity to go forexport in LNG form. Still, it has to takePetrobangla’s approval for selectingbuyers as well as conditions of export

and price of LNG.

The rising demand of gas in the countryand its lower price compared to interna-tional market clearly show the chance ofexport by ConocoPhillips is very thin.It’s a misconception that the Petrobanglawill allow export keeping huge demandinside the country.

Again if the export takes place it has tobe in the form of LNG. But, an LNGproject is not viable if the reserve is lessthan 15 TCF

History said that all the PSCs of 1974,1988, 1992 and 1997 had the option ofexport, but no export took place. Themain reason is that the country itself hashuge market.

The 1988 PSC had the option of bothpipeline and LNG export. The 1992 PSChad also allowed the LNG form ofexport. Moreover, it had not compulsionof selling gas to a third party within thecountry in case of refusal by thePetrobangla to purchase gas. The 2008PSC has made it mandatory. So, possi-bility of export has also lessened.

Apprehension of Military TensionBangladesh is lagging behind India andMyanmar in offshore exploration. Whilethe neighbors had a good number of dis-coveries, Bangladesh is yet to start. Onemain reason of being “late Latif” is lackin farsightedness of the policymakers.

Then it witnessed a setback when thecaretaker government took practicalaction for offshore exploration, due toopposition by the OGPC. At that timethe group argued that the caretaker gov-ernment has no right to sign PSC and ithas to be kept for an elected govern-ment.

But, when the elected government tookthe decision to sign PSC withConocoPhillips for two offshore blocksnow they are saying it’s anti-state.

Also, the OGPC leaders in one sideclaimed that the government suspendedexploration in some areas of the twoblocks following objection by India andMyanmar, to protect interest of the twocountries. On the other hand theyclaimed that the exploration in twoblocks will create political and militarytension.

It ’s not clear that what ’s their real

12

position on the matter.

If the nation wants to meet the growingdemand it has no alternative but to gofor offshore exploration. But, at the sametime it can’t explore the disputed areasclaimed both by Bangladesh andMyanmar as well as Bangladesh andIndia as the decision is pending with theUnited Nations following claim on theoffshore blocks by the neighboringcountries

It’s now clear that neither India norMyanmar has any objection on the areasConocoPhillips will go for exploration.Also, ConocoPhillips has no objectionas some areas of their awarded blockswill remain out of exploration due to thepending decision by the United Nations.

Compensation RowIt’s alleged that the PSC doesn’t haveenough protection in case of any acci-dent. However, confusion will be over ifclause 10(19) is read which is: TheContractor shall obtain insurance cover-age during the term of this Contract, forand in relation to Petroleum Operationsfor such amounts and against such risksas are specified below and/or as may bespecifically agreed by Petrobangla, andshall furnish to Petrobangla policies/cer-tificates evidencing that such coverageis in effect. Such insurance policies shallinclude Petrobangla as additional nameinsured and shall waive subrogationrights against Government andPetrobangla. The said insurance shall,without prejudice to the foregoing,cover:a) Loss or damage to all installations,equipment and other assets for so longas they are used in or in connection withPetroleum Operations, provided howev-er, that if for any reason the contractorfails to insure any such installation,equipment or assets it shall replace lossthereof or repair damage caused theretowithout benefit of Cost Recovery.b) Loss, damage or injury caused by pol-lution in the course of or as a result ofPetroleum operations.c) Loss of property or damage or bodilyinjury suffered by any third party in thecourse of or as a result of PetroleumOperations for which the Contractormay be liable.d) Any claim for which Petrobangla maybe liable relating to the loss of property

or damage or bodily injury suffered byany third party in the course ofPetroleum Operations.e) The cost of cleaning up pollution fol-lowing an accident in the course of or asa result of Petroleum Operations.f) The cost of removing wreck or debrisas a result of an accident duringPetroleum Operations.g) The Contractor’s and/or Operators lia-bility to its employees engaged inPetroleum Operations.h) Cost of well control and re-drillingexpenses in accordance with theStandard London Energy Explorationand Development wording (E.E.D.8.86)or such other form in common use in theInternational Petroleum Industry and asmay be agreed by Petrobangla.

It said: Insurances specified in clause10.19 (a) to (h) above to be concludedwith local insurance companies inaccordance with Bangladesh InsuranceLaw as long as coverage is available asabove and in accordance withInternational Petroleum IndustryStandards.

The PSC further said: In case ofPetroleum that has been produced to thesurface, Contractor shall ensure againstsuch risks of loss and damage for suchamount and with such insurer or insur-ers as may be agreed with Petrobangla,and shall nominate Petrobangla andContractor as joint beneficiaries undersuch insurances. Any benefits arisingthere from shall be divided between theParties in proportion to their respectiveentitlements to Petroleum at the relevanttime. Insurances specified in clause10.19 (a) to (h) above to be concludedwith local insurance companies inaccordance with Bangladesh InsuranceLaw as long as coverage is available asabove and in accordance withInternational Petroleum IndustryStandards.

In case of Petroleum that has been pro-duced to the surface, Contractor shallensure against such risks of loss anddamage for such amount and with suchinsurer or insurers as may be agreedwith Petrobangla, and shall nominatePetrobangla and Contractor as joint ben-eficiaries under such insurances. Anybenefits arising there from shall be divid-ed between the Parties in proportion to

their respective entitlements toPetroleum at the relevant time.

Real Critical PointThe real critical point for Bangladesh inoverseeing the PSCs, including withConocoPhillips, is running the jointmanagement committee (JMC) properly.

Like other fields, Bangladesh lacks inreal experts who represented thePetrobangla in the JMC. So, if anythinggoes against Bangladesh’s decision bythe JMC it might be due to lack inexpertise. So, a good option might behiring real experts to represent thePetrobangla in the JMC.

A group like OGPC can really works asa pressure group if they keep the JMCunder monitoring. A good sign is that theenergy sector officials are now morecareful in every deal and operation dueto presence of such a pressure group.

But, unfortunate part is that a section ofpeople talk in one way when serve thegovernment, but take a U-turn whenthey are not in the government machin-ery.

Just take one example. Bangladesh’senergy sector saw the first controversywhen a discovered field, Jalalabad, wasawarded to Occidental (Now Chevron)in 1992 with SKM Abdullah wasChairman of the Petrobangla. His argu-ment was that small fishes have to besacrificed to get big fishes. But, the sameman joined the OGPC following hisretirement and started campaign againstthe IOCs.

Without questioning anyone’s patriotismit’s better for the country if real expertstalk about on real ground. That mightbring fruit for the nation. Emotional andirrational demand will only hinder theenergy sector development that will cre-ate sufferings for people.

But, the government should also try toavoid unnecessary controversy anddebates. The present debate onConocoPhillips deal is getting grounddue non-disclosure of the PSC signedwith the US company. The governmentshould immediately disclose it.

Zahid Newaz Khan,News Editor, Channel I

13

EP

The recent debate over signing ofthe Production Sharing Contract(PSC) with a US company,

ConocoPhillips, has been driven main-ly by inadequate information and mis-understanding of the provisions of thecontract. In the midst of confusion, wehave also seen objective reporting by anumber of major print and electronicmedia, which helped to remove someof the confusions surrounding the PSC.

The PSC has been concluded protect-ing our national interest keeping asideany other considerations. It is a com-mon knowledge that our provenreserve of natural gas is about 8 Tcf,which can supply energy for a maxi-mum of 7 years.

The imperative of energy security forBangladesh demands ensuring accessto all forms of energy resources, includ-ing the natural gas -- the energy ofchoice for the country. In order toexploit the untapped energy potentialsof our extended continental shelf, arenowned oil and gas company hasbeen assigned the responsibility ofexploration at the deep sea consti-tuting blocks 10 and 11.

Some people have expressed theview that we could have engagedour national company BAPEX to dothe same work. While I fullyempathize with this feeling, it mustbe clearly understood that BAPEX isyet to attain technical prowess andfinancial muscle to venture into thehydrocarbon exploration at deepsea. A day will definitely come infuture when BAPEX like Petronas ofMalaysia will be equipped to under-take drilling activities in our deepsea blocks.

But, if we choose to wait for ournational companies to grow instrength and then explore our energyresources it will be suicidal.

Enhanced supply of energy will be asine qua non for increasing the energyintensity to reach a double digit GDPgrowth rate for Bangladesh.We maychoose to delay but time will not(Benjamin Franklin).

We must act now and explore allavenues to ensure energy security forBangladesh. We cannot afford to waitwhen the country is reeling from severeenergy shortage. Any delay on our partto tackle this crisis head-on will be akinto the historical spectacle whenEmperor Nero fiddled when Rome wasburning.

The debate and controversies havecentered around two aspects of thePSC, namely, export of gas and share ofBangladesh.

It is a matter of record that all previousPSCs have provision for export withprior permission from the governmentshould Petrobangla and other prospec-tive customers decide not to take gasfrom the contractor under the PSC.Despite inclusion of the export provi-sion, we have not had any occasion of

exporting gas from our currently pro-ducing fields. The export provision canonly trigger if our full domestic require-ments are met and there is no buyer forthe contractor’s share of gas. In all like-lihood, the export window will remaina theoretical possibility. It not only pre-supposes a big commercial discoveryin the range of 6/7 Tcf but also hugeinvestment, if government agrees, ofbetween US$ 2.5- 3.0 billion for amedium-sized liquefaction plant.

The argument against export comes notfrom economic considerations. Ratherthe desire is to keep our energyresource for future consumption by us.For argument’s sake, if we are lucky tostrike a big reserve in deep waters, wecan always avoid export by foreigncompanies through conserving andcontrolling production in the fields runby our national companies.

The most outrageous part of the debateinvolves assertion by some quartersthat Bangladesh will get only 20 per-cent of gas if there is commercial pro-duction.

This only exposes the soft underbel-ly of their mathematical reasoning.Nothing can be far from the truth.We must not lose sight of the factthat actual benefit must be assessedonly after we take into account thecost incurred in developing andoperating any field. The accountingof the cost must be done not only forIOC but also for national company.

Once cost recovery is done ourshare of profit gas (free) will rangebetween 55 to 80 percent depend-ing on level of production. Moreproduction will mean greater sharefor us. To take one example,Petrobangla currently gets about 75percent of production from Bibiyanafield being operated by Chevron asprofit gas.

PSC: Setting The Records StraightMohammad Mejbahuddin

15

COVER PLUS

Mohammad Mejbahuddin

However, the profit sharing arrange-ment will be different in case of blocks10 and 11 given significant differencesin cost implications of developing andoperating a gas field located in ourextended continental shelf. UltimatelyBangladesh’s share will depend on theactual size of the reserve as well as costthat need to be incurred to bring thehydrocarbon resources to the doorstepsof consumers in Bangladesh.

It is premature to pass judgment aboutour share of profit gas other than therange mentioned above let alone put-ting any definite number at this point intime to indicate our share.

The PSC that the government signedwith ConocoPhillips is a balanced onebased dominantly on the provisions ofModel PSC 2008.

One major improvement over otheroperating PSCs is that Conoco will bepaying its corporate tax if there is acommercial discovery whereasPetrobangla pays tax of companies cur-rently working under already signedPSCs.

In respect of price of gas at which con-tractor will be obligated to sell toPetrobangla, the PSC withConocoPhillips puts a price capindexed to price of HSFO. This impliesthat Petrobangla will be buying con-tractor’s share at a relatively stableprice irrespective of prices obtaining ininternational market.

The current estimate is that purchaseprice of gas will hover around US$4.50/Mcf. If we consider the fact thatthe contractor will have to pay corpo-rate tax at the going rate then the priceof per unit of gas will be even lower.

As against this, Indian PSC allows armslength sale by contractors where priceis determined by the interaction of themarket forces. It is obvious that ourPSCs including the one with Conocoprovides protection from unpredictableupward movements in energy prices.

Mohammad Mejbahuddin, Secretary,Energy & Mineral Resources Division

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Bangladesh, so far,has explored alimited quantity of

indigenous natural gasreserves. Proven gasreserve is not enough tosustain long. Alreadyconnected natural gassupply to power, indus-try, fertilizer, commer-cial, domestic and othersectors is worriedlylooking for the gasabundance to meetfuture demand. If gas reserve is notenhanced through exploration anddevelopment, the further expansion of allthese sectors will either be stagnant or bebound to find import markets for primaryenergy sources. In such case, the import-ing cost will be much higher than thedomestic gas price and may cause nega-tive impact on the gas consuming sectorsand the economy of the country. Theconsequences shall have to be borne bythe country's end users that are the gen-eral public. Therefore, considering diver-sified challenges and to ensure energysecurity by 2021, the country has noalternative but to go for immediate huntfor exploring new gas fields irrespectiveof offshore or onshore areas.

Country's onshore gas resource/reservestatus is well addressed and has got amomentum, but it is not enough to copeup with increasing gas demand. Deepoffshore area is still virgin and this hugearea is left unattended. It deserves imme-diate hunting to know whether any oiland gas reserve exists in the offshore sub-surface or not.

Our neighboring countries India andMyanmar have been conducting oil/gasexploration operation under PSCs nearthe respective deep sea borders.Disputes are there in regard to maritimeboundary. Bangladesh's right has to beestablished in the deep sea. Deep seaexploration is risky and huge cost

dependent by techno-logical nature itself.Specialized expertise,equipment, technologyand manpower are nec-essary. Till to the tenureof the recent past gov-ernment, country's onlyoil and gas explorationcompany BAPEX was todrill wells with 22 to 32years' old rigs. Presentgovernment has alreadyprocured one onshore

deep drilling rig and one more is to beprocured very soon. Offshore technologyoriented rig, equipment and experiencedmanpower are not at all available inBAPEX. It is not in the state of the artstage to conduct so highly technologicaland risk oriented exploration jobs in thedeep sea. Moreover, exploration jobdoes not guarantee to find oil/gas. It isdependent on the existence of oil/gas inthe sub-surface. It can be confirmed onlyupon drilling upto the reservoir depthafter spending of huge money as appli-cable by nature of the job. If no gas isfound, the whole efforts will go in veinand the money is lost. Therefore, thesteps as have been taken to signingProduction Sharing Contract forBangladesh Deep Sea Blocks DS-08-10and DS-08-11 appear justified and forthe sake of the country.

Some Contract Highlights of thePSC With ConocoPhillips

Contract area is located about 280 kil-lometers distance from the Chittagongport. Water depth varies from 1.00km tothe 1.50 km. Tentative drilling depthfrom the sea bed is minimum 2.20 km,and from the water surface it stands to befrom 3.20 km to 3.70 km deep. Until oil/gas is discovered, the contractor willbear all technical and financial risks andliabilities. Petrobangla or the govern-ment will not bear any of such risks andfinance. If gas is discovered, then contrac-tor should prove that the reserve is

Negative Intentions & RealityProf. Dr. Md. Hussain Monsur

EP

Md. Hussain Monsur

commercially viable. The ownership of thegas reservoir will remain with Petrobangla,thereby with the govt./nation which isensured in the contract. Contractor willthen be allowed to recover its cost from ashare of gas to be produced which is maxi-mum 55% of the produced gas per year.Remaining portion is termed as the "ProfitShare", out of which Petrobangla's sharewill be from 60% to 85% for oil/condensateand from 55% to 80% for gas production.That means, the more the daily productionwill be there, Petrobangla's share willincrease as per slabs indicated in the con-tract.

Contractor's exploration and developmentprograms including financial involvementwill require Petrobangla's priorapproval/consent. Mandatory explorationjobs (seismic surveys and explorationdrilling) are defined in the contract.Failure to drill exploration wells will resultthe contract termination after 3 years.Gradually Bangladeshi minimum employ-ment is 50% during exploration periodand minimum 70% by 10th productionyear. Contractor cannot claim gas prices

unlimited. The Floor and Ceiling pricesare limited within $70 to $180 to be cal-culated based on HSFO Singapore for nat-ural gas, and on the 3 selected crude inSingapore market FOB prices basis forOil/Condensate.

Contractor is bound to deliver its ownshare to Petrobangla and Petrobangla willpay the price of contractor's share gas asper contract rate. Contractor may considerselling of gas to 3rd party within the coun-try only when Petrobangla will find noconsumer within the country and as suchrefuses to get this gas. Here, Petrobangla'sconsent is a must. If no 3rd party con-sumer within the country is found, thecontractor may consider to covert the gasinto LNG to export after Petrobangla'sapproval. It may be noted that, some por-tion of such LNG will have a share ofPetrobangla’s profit share gas and its pricewill be of the same price of LNG and bethe Petrobangla’s own share. However, itis remarkable to note that present govern-ment has decided not to export gas/LNGuntil 50 years of contingent stock isensured for country’s future demand meet.

Right at this moment, government hasdecided to import LNG to meet country’sdemand. Accordingly its infrastructuresincluding construction of FSRU and LNGterminals are under construction process.Since Bangladesh itself has decided toimport LNG, in that case the question ofexporting LNG does not arise.

Therefore, applicability of LNG conver-sion and export step will arise only whenthe country's gas demand is completelymet and it is surplus. Nevertheless,Petrobangla has the right to have a contin-gent stock of maximum 20% gas out ofsurplus exportable gas in LNG form. Aminor corner explains it as the 20% of thetotal producible gas, which is completelywrong, misconception and misleading. Ithink, conscious people of the country willunderstand the reality and the nationalinterest of the Deep Sea PSC signing. Ofcourse, they will nullify the negative inten-tions of the vested corners.

Prof. Dr. Md. Hussain MonsurChairman, Petrobangla

EP

17

The production sharing contract(PSC) with US companyConocoPhillips has become one

of the most debated issues in the coun-try. The debate would perhaps ranknext to the debate over the amendmentto the Constitution of the country. It isnow well evident that the people of allsection, particularly the conscious andpolitically sensitive ones, often andagain are locking in arguments andcounter arguments on the issues atevery corner of the country. The nationeven witnessed a half-day hartal inSeptember 2009 when the governmentapproved the Conoco proposal on thedeep offshore blocks. The NationalCommittee on Protecting Oil, Gas,Mineral Resources, Power and Port(OGPC) also announced a half-day har-tal program on July 3, protesting thesigning of the agreement.

The Energy & Power took an initiativeto seek opinions on the PSC from theinformed society — be they politicians orcivil society members. The news surveysuggested that the opinion leaders haveexpressed almost a similar view that thegovernment should disclose the agree-ment to clear the confusion createdover the issue. They also tried to look atthe concerns over the provision of gasexports and the share of gas to be dis-

covered from the deep offshore blocks10 and 11.

Following are the excerpts from theopinion as expressed by the experts:

Dr. M. TamimProfessor, Department of Petroleum andMineral Resources, BUETExport is the main issue of opposing thiscontract. Hypothetically, if a small field(1 TCF or less) is found spending $110million, the decision of developmentthat may run up to 500-600 million USdollars will depend on the economicsof the project. If the company declaresit as commercial discovery and

Bangladesh wants to buy the gas, it islikely that the company will never beable to recover its cost. Even then, ifthey go ahead (extremely unlikely), forBangladesh, a minimum of 25% of theentire gas as profit gas is ensured in thecontract. The present ceiling fixes thegas price at $4.5/MCF. After recoveringtax from the company, the effective gasprice is about $4/MCF. The final cost ofthe gas including our profit gas wouldbe $3/MCF. This would be a fantasticdeal. In case Bangladesh refuses to buyit, there is absolutely no chance for thecompany to invest $2 billion for an off-shore LNG plant.

Looking at the other extreme of proba-bility, let us say that 5-10 TCF gas isfound. Each TCF is capable of produc-ing 200 MMCFD for 15 years. So, 5-10TCF gas will allow production of 1,000MMCFD to 2,000 MMCFD. PresentlyBangladesh is producing 2,000MMCFD with a deficit of 500 MMCFD.The projection is by next 10 years thedemand will easily exceed 4,000MMCFD. Even in case of a quick suc-cess, the offshore development will takeat least five years to come on stream.With a large discovery and the same orlittle higher development cost, the costrecovery will be realized in 4-5 yearstime. In the long run, Bangladesh’s

DisclosePSC,ClearConfusionNahid Anjum Siddiqui

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DEBATE

Dr. M Tamim

cumulative share in a large discoverywill be over 60% (conservatively). As aresult, the effective gas price will beonly $1.6/MCF.

The next question is will Bangladesh beable to buy 2,000 MMCFD gas? It willbe extremely difficult for Petrobangla tomaintain even the present level of pro-duction for the next five years as manyof its fields are gradually declining.There is no other alternative to discov-ering new gas fields - whether onshoreor offshore to meet the future demand.The question of being unable to buyeven 2,000 MMCFD at an effectiveprice of $1.6/MCF does not arise at allbecause the present import option ofLNG price is not less than $10/MCF.

Any contract may be questioned onmany issues but that must be based onfacts and rationale, not cynicism. Onthe basis of the PSCs being carried outfor the last 13 years in the country, theoffshore 2008 contract is well balancedand protects the interest of the country.Petrobangla has handled the existingcontracts fairly well (there is alwaysroom for improvement) and I believethat with proper monitoring and atten-tion they will do a good job in thefuture too.

AKM Mosharraf HossainFormer State Minister for EnergyI don’t see any problem in the PSC if thecompany is selected through a transpar-ent bidding system. However, I am notsure whether it was international stan-dard. If so, it was a good initiative. On

the other hand, OGPC is damaging theinterest of the country in the name ofprotecting the resources as they areforcing the country into a crisis.

Meanwhile, we are wasting gas throughgenerating electricity. So we shouldextract coal for this purpose. Otherwise,it would be a criminal offense.

And there is no alternative to extractcoal through open-pit mining method.We should keep in mind that the OGPCis opposing exploration of the resourcesnot for the interest of the country, butfor their publicity and increasing theirimportance. They are hatching conspir-acy to create an energy crisis of bignature through forcing the governmentto keep the resources underground.

Mahmudur RahmanFormer Energy AdviserThere is no alternative to explore oiland gas through PSC to meet the mas-sive demand for gas in the country. Inthis consideration, the PSC signed withConoco was positive. We have hadarranged withdrawal of the court’sembargo to initiate offshore bidding.But the confusion created among thepeople over the PSC due to the selec-tion process that was not transparent.That means, the selection process wasnot open to the people as to why thecompany was selected. Many think thatthe government signed the agreementwith a US company to cover the affect-ed relationship with USA over the issueof Dr Yunus. The government is com-

pletely failed to remove the people’sconfusion over the PSC.

I did not have a look at the PSC. Butthere are saying that we will have tobuy the gas at international marketprice. If it is so, we are the losers. I donot also think that the rights given to thecompany to sell gas to third party isright. I think, there is a huge demand forgas in the country and Petrobangla iscapable to distribute the gas after buy-ing it from the company.

However, foreign companies shouldnot be allowed to explore the onshoreblocks. BAPEX should be assigned to doit. On the other hand, I do not supportthe stance of the OGPC because theyare opposing investments in this sectorwhich are coming only from the west-ern countries. They are not sparing asingle word when the ports and transitfacilities allowed to our next doorneighbor. It seems to me based on thesituation that they are working for theinterest of a special country. On theother hand, the committee is opposingforeign investment in the energy sector,but not recommending any realisticalternative. What alternatives they aresuggesting are utopian or unrealistic.

Maj Gen (Retd.) Subid Ali Bhuiyan, MPChairman, Parliamentary StandingCommittee on Ministry of Power,Energy and Mineral ResourcesThe PSC with ConocoPhillips is the bestone so far Bangladesh signed for explo-ration of gas and oil. The overall inter-est of the country as well as the people

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AKM Mosharraf Hossain

Mahmudur Rahman

Maj Gen (Retd.) Subid Ali Bhuiyan, MP

was completely protected in this case.You all know that the people will haveto be provided with power and to dothat gas and coal must be there. We donot have any information about thereserve in the deep offshore fields whilehuge investment, experience and tech-nology needed to know the informa-tion. So, the government had not anoption to take an initiative better thanthe PSC. However, we have a failurethat we could not let the people knowthe fact through media and a certaingroup took the advantage to mislead thepeople.

I think, the government is taking everysingle decision in the energy sector in atransparent manner for the welfare ofthe people and advancement of thecountry. For this reason, the parliamen-tary committee has suggested the min-istry to let the people know the ration-ality of every agreement in this sector,not only the PSC with ConocoPhillips.

A government, which is working for thewelfare of the country, should not haveany reservation in this regard. Weshould keep in mind that not onlyBangladesh, all our neighboring coun-tries like India, Myanmar, China andMalaysia are exploring gas and oilthrough PSC. The recently signed PSChas ensured 100% of our ownership onthe oil and gas to be discovered in thefields and use of 100% of the oil andgas will be controlled by Petrobangla,which has all the rights to buy, apartfrom its share, all the gas and oil to be

produced from the blocks. And there isa huge demand for gas in the country.So, it’s nothing but a propaganda thatthe gas is going to be exported in LNGform.

Rashed Khan Menon, MPPresident, Bangladesh Workers PartyIf you want my opinion, I stronglyoppose this agreement signed by thegovernment and Petrobangla withConocoPhillips. In this agreement, twoparts are conflicting -- 80:20 profit shar-ing is one of them. This profit sharingratio is completely serving the foreigncompany’s interest instead ofBangladesh. Foreign investors investhere for their interest, no doubt of it.This is business. Where the question isbusiness, we must think of our interestfirst. But in this agreement, it seems wewill serve for ConocoPhillips.

Moreover, in this clause,ConocoPhillips will offer the govern-ment when it would be discovered. Ifthe government denies purchasing gas,ConocoPhillips will offer the local com-pany. What will happen ifConocoPhillips’s tariff is out of the gov-ernment capability? What will happenif local company cannot afford purchas-ing the gas? Ultimately, the result isclear. It will export gas outsideBangladesh and the country will beloser.

The second thing is pipeline construc-tion. In the agreement it is not manda-tory for ConocoPhillips to construct

pipeline. So, if ConocoPhillips deniesconstruction of the pipeline and if thesituation arises, Bangladesh must haveconstructed it to supply gas from deepsea to land. It will cost high.Meanwhile, LNG import by Bangladeshis under process. The gas field will befully controlled by ConocoPhillips.BAPEX should have been a control part-ner in this agreement. I oppose theagreement as well.

Prof. Anu MohammadMember Secretary , OGPCSince 1997, Bangladesh’s gas sector isgoing through a critical condition.American and Indian missions, theWorld Bank, ADB and many interna-tional organizations were involved inconspiracies over the sector. Someclauses of the PSCs can be used againstthe National Interest. Energy specialistshave showed and alerted the govern-ment about the inconsistencies of thecontract and clauses against the nation-al interest repeatedly.

From the beginning of this procedure,the National Committee on Oil-GasProtection (OGPC) showed the logicsand information why we should notsign the agreement. But the governmentand Petrobangla have ignored all theseand signed the agreement. The clause15.5.4 says, “where Petrobangla hasinstalled necessary facilities to transportand use gas to meet domestic require-ments, Petrobangla shall be entitled atits option to retain in kind any naturalgas produced up to Petrobangla's share

21

Rashed Khan Menon, MP Prof. Anu Mohammad

Sharif Nurul Ambia

of profit gas, but in no event more thantwenty percent (20%) of the totalMarketable Natural Gas.” It means,ownership of the rest 80% of the costrecovery gas will be going to theConocoPhillips’s pocket through thedeceptive way.

And this pipeline will cost a minimumof US$ 350 million, which is more thanthree times of ConocoPhillips’s primaryinvestment of US$110 million. Manyargued that we have not enough power,technology and capital. What shouldwe do rather than this? This tendencymakes us weaker. I strongly oppose thisagreement.

Sharif Nurul AmbiaGeneral Secretary, JSDI have not gone through the agreementvery well. From my level of knowledge

about the agreement, this is contempo-rary for our huge demand of gas inhouseholds and industries. Moreover, toexplore gas from deep sea, we need bigamount of investment, which is not pos-sible by the local investors. And thegovernment cannot bear this hugemoney alone. Most of the oppositionsof the agreement argued about the prof-it-sharing ratio. Every investor wants tosecure their money and this clause ofagreement is not more than this. Theyjust want a security of their investment.So, from Bangladesh’s point of view,this agreement is revolutionary.

Abdul Awal MintooFormer President, FBCCIAny natural resource like oil and gascannot become a resource until it isused for the welfare of the people afterexploration and extraction of theresource. Exploration is so highly tech-nical and expensive that Bangladeshdoes not have the capacity to meet.These activities are being carried outthrough PSCs across the world. In thisconsideration, the signing of the PSCthrough following the internationalpractice of bidding is positive. Weshould keep in mind that we don’t havethe capability to extract the resource onour own initiative. So there was noalternative to sign the PSC.

Those who are saying that the contractis not balanced they have not com-pared the features of the PSC with thoseof other countries. If they are saying thecontract is lopsided without having acomparative analysis, we don’t need toresponse to their demands. I think theoil, gas protection committee is the cre-ation of Awami League. The currentPetrobangla Chairman has had workingrelation with them. The PetrobanglaChairman should now explain to thepeople whether the PSC is unequal ornot.

Aftab-ul-IslamPresident, AmChamNo resources can be treated as assetunless those can be extracted and uti-lized for the welfare of the people. Andutilization of the resources is theresponsibility of the government, notthose who are opposing the move in thename of protecting the oil, gas and coal.

We know that we have a supply short-age of energy and there is no discov-ered gas field in hand to increase pro-duction. Whatever resources we have,we do not have the financial and tech-nical capability to explore them. So, thePSC signed with ConocoPhillips was anappropriate initiative. There is no doubtthat it has been possible to sign an inter-national standard PSC, which has pro-tected the interest of the country.

Even then, the so-called oil, gas protec-tion committee is misguiding the peo-ple through propaganda. The govern-ment should publish the PSC throughthe parliament to make people under-stand that the campaign on excuse ofexporting gas is a mere propaganda. Ido not think it would be rational that

the government would delay coalextraction amid fears of criticism.

Asif IbrahimPresident, DCCIThere is no alternative to explore gas asthe country is suffering from energy cri-sis. In this consideration I welcome thePSC with ConocoPhillips if it is in theinterest of the country. We don’t knowthe details of the contract as the gov-ernment did not make it public yet.Those who are opposing it have alsothe right to protest against the contract.However, there is no time remains idleto explore gas as the country desperate-ly needs energy.

AKM ShamsuddinChairman & CEO, E-zone

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Abdul Awal Mintoo

Asif Ibrahim

Aftab-ul-Islam

There is no meaning to keep resourcesunderground. So, there was no alterna-tive to sign the PSC for exploration of oiland gas. In this consideration, the gov-ernment has done an appropriate job oflate.

Those who are demanding that BAPEXshould perform the exploration activi-ties they do not have actual perceptionabout BAPEX. However, there is noalternative to the government toenhance the negotiation skills of themanpower in this sector. I would like topose a question why people are notvocal against profit repatriation by theforeign power producers and mobilephone operators operating here.

Instead, a certain group is opposing themove to attract foreign investment inexploration of primary energy. Theirmain objective is not protecting theinterest of the country, but to push thecountry into a crisis through delayingassured supply of energy. Overall, theyare in a mere campaign against thePSC, but not giving any rational alterna-tive.

Prof M M AkashDepartment of Economics,University of DhakaThis agreement is made according tothe Model PSC 2008, which is reportedto have been changed 1% or so whichwas not disclosed and there is anotherclause in the agreement itself not to dis-close the final agreement for the peo-ple! So, we can comment on this finalagreement only on the basis of

assumption.

Whispering about the agreement, therecomes four changes in it. Firstly, theauthorities of Petrobangla gave furtherconcessions so that the measurementpoint could be decided unilaterally bythe ConocoPhillips. Secondly, the courtabout arbitration or obligation can belocated in Singapore, which wasrestricted in the previous original modelPSC. The third point is about the clauseof payment of inefficiency damages,which was omitted by the new commit-tee in the agreement. And lastly, thecommittee will work on joint approval,which indirectly may limit thePetrobangla’s control.

If these four changed clauses are reallyincluded in the new agreement, thething is going to make anxiety, nodoubt. But the original promise was notto change any clauses. Even in the orig-inal PSC, the clause says,‘ConocoPhillips may construct thatpipeline’. It means that Conoco Phillipscan construct the pipeline if the author-ities of ConocoPhillips think to do so. Itis not mandatory to ConocoPhillips. It istrue indeed that they will have to offerthe gas first for sale to us under theagreement, but given the huge opportu-nity cost and past corruption heritage, Ithink Petrobangla will not be able towithstand the pressure to allow toexport. Further so because they mayproduce in excess of our demand andcapacity to buy. With all these, I can saythat this contract gives ample scope to

the contractor to go for export, jeopard-izing our energy security.

Mortuza Ahmed FaruqueManaging Director, BAPEXIt was very good to sign the PSC as itwould facilitate starting explorationactivities in the offshore, which shouldhave been started much before. And thePSC with ConocoPhillips has protectedthe country’s interest much better thanthe previous ones. This PSC ensured100 percent ownership of the people,not the company. On the other hand,Petrobangla will decide how the gas tobe discovered will be used. We shouldkeep in mind that the gas can be export-ed in LNG form if there is a huge dis-covery and only when there will be noroom for utilizing the gas in the country.

Meanwhile, BAPEX is strengthening itscapacity gradually to explore oil andgas in the onshore. But it has not thefinancial and technical capacity toexplore even in the shallow offshore. Toattain the capacity to explore in theshallow offshore, it will have to workwith foreign companies through jointventure. It is irrational to think that off-shore exploration will have to be car-ried out when BAPEX would achievethe capacity.

Those who are opposing the PSC, theyare doing it on a pre-set irrationalassumption. They should refrain fromthe campaign against the contract

AKM Shamsuddin

Prof M M Akash

Mortuza Ahmed Faruque

EP

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The main issue of opposing theOffshore 2008 contract is theissue of export. Let us examine

the two extreme cases. A very likelycase is nothing will be found from thesetwo blocks. In that case the entireinvestment by the oil company will bea loss to them with Bangladesh havingno financial responsibility. That is theprincipal reason behind signing a PSCfor most of the countries - to avoid thehigh financial risk. Hypothetically if asmall field (1 trillion cubic feet or less)is found spending $110 million (mini-mum work requirement?), the decisionof developing that may run up to 500 to600 million dollars will depend on theeconomics of the project. If the compa-ny declares it as a commercial discov-ery and Bangladesh wants to buy thegas, it is likely that the company willnever be able to recover its cost ($700+million). Even then if they go ahead(extremely unlikely), for Bangladesh, aminimum of 25% of the entire gas asprofit gas is ensured in the contract.The presentceiling fixes thegas price at$4.5/Mcf (thou-sand cubicfeet). The newcontract saysthat the compa-nies will paytheir income taxwhich is cur-rently paid byPetrobangla forthe existingcontracts. Thecurrent gasprice is about$3.6/Mcf (baseprice $3 + tax$0.6). Afterrecovering tax

from the company, the effective gasprice will be about $4/Mcf in the newcontract which is actually only margin-ally more than the older contracts. Thefinal cost of the gas including our prof-it gas would be $3/Mcf (0.75x$4). Thisis the worst case scenario and wouldbe a fantastic deal. In case Bangladeshrefuses to buy it, there is absolutely nochance for the company to invest $2billion for an offshore LNG plant with aone tcf reserve. Looking at the other extreme of proba-bility, let us say that 5 to 10 tcf gas isfound. Each tcf is roughly capable ofproducing 200 MMcfd (million cubicfeet per day) for 15 years. So 5 to 10 tcfgas will allow production of 1000MMcfd to 2000 MMcfd. PresentlyBangladesh is producing 2000 MMcfdwith a deficit of 500 MMcfd (there areadditional suppressed demand at thepresent low price of gas). The projec-tion is that by next ten years thedemand will easily exceed 4000MMcfd (Ref. Petrobangla). Even in case

of a quick success the offshore devel-opment will take at least five years tocome on stream. With a large discoveryand the same or little higher develop-ment cost, the cost recovery will berealized in 4-5 years time. In the longrun, Bangladesh cumulative share (afterpaying cost recovery) in a large discov-ery will be over 60% (conservatively).As a result the effective gas price willbe only $1.6/Mcf (0.4x$4).

The next and a very critical question is“will Bangladesh be able to buy 2000MMcfd gas in next ten year time?” Itwill be extremely difficult forPetrobangla even to maintain the pres-ent level of production for the next fiveyears as many of its fields are graduallydeclining. There is no other alternate todiscovering new gas fields - whetheronshore or offshore to meet the futuredemand. The question of being unableto buy even an unlikely 2000 MMcfd atan en effective price of $1.6/Mcf at themeasurement point does not arise at allbecause the present import option of

LNG price isnot less than$10/Mcf. At thatkind of low gasprice whichneeds to be soldat $4-5/Mcf tothe customersfor future sus-t a i n a b i l i t y ,deve lopmen tprojects willboom likem u s h r o o m s .The high pricespeculation thatpiped offshoregas will bemore expensivethan the import-ed gas is mere

27

SPECIAL ARTICLE

Offshore PSC-CynicismVs. Facts

Dr. M. Tamim

Sangu offshore gas platform

propaganda. The large Bombay heightgas discovered by Reliance Energy ofIndia is being sold at $5/Mcf in theIndian domestic market. The Myanmaroffshore gas was bought by the Chineseat $4.25/Mcf. If the government orPetrobangla keeps selling gas at thecurrent weighted average price of$1.6/Mcf, the Bangladesh gas sectorwill not be able to survive becausedomestic transportation, distributionand other infrastructure will require atleast the average price to be $3.5/Mcfto the consumers. The cost of findingand producing gas has increased tenfolds than early sixties when most ofthe Petrobangla fields were discovered.Any comparison with that cost is equiv-alent to demanding a Dhanmondi resi-dential plot at taka ten thousand today.

In the really extreme case of a 15 tcfdiscovery, the chance of LNG exportbecomes a reality. In that caseBangladesh will have the right to use amaximum of 20% of the entire gas fordomestic use that can be raised to 30%after ten years. Although theBangladesh share of the entire gas willnot be less than 70% for the life of theproject (Bangladesh share keepsincreasing as the size of the discovery isbigger). That means even if the compa-ny sells 80% of the gas at a very highprice, Bangladesh will get at least62.5% (100x50/80) of that export rev-enue. Higher the company can sell thegas bigger will be the revenue for thecountry in billions of dollars. Now theequation for the 20% (3 tcf) is simple.That part will have to be broughtonshore by Bangladesh. The pipelineand a processing plant will cost in therange of 500 to 600 million dollars. Ifthe excess capacity of Sangu’s Salimpurplant can be used, this cost will comedown. This gas is part of the profit gasfor Bangladesh costing nothing. Thetransportation and processing will be inthe range of $1.0/Mcf. The daily supplyof 600 MMcf gas even at $2/Mcf willbe a bonanza for the country (comparethat with the proposed 500 MMcfdLNG import at $10-15/Mcf).

The alternate to PSC contract, is beingsuggested that BAPEX should do all theactivities, both Onshore and Offshore.

Despite all the praise of BAPEX suc-cesses, it has its limitations. First of all,until the last caretaker governmentnone of the previous governments seri-ously supported BAPEX development.The seven year vision plan, proposedby BAPEX, was approved in its entiretyby CG including the gas price increaseto Tk 25/Mcf from Tk 8/Mcf (old gas).That would eventually be raised to Tk50. Instead of lip service and rareexample of continuity the present gov-ernment is sticking to that plan. BAPEXhopes to add 200 MMcfd by 2014 (notsufficient for the country) and becomeself sustaining. Accordingly they haveacquired a new rig and presently fullyoccupied for the next three-four years.

BAPEX has so far drilled relatively lowrisk areas and enjoyed a 3:1 successratio but the ten BAPEX discoveredfields have only about 3 tcf reserve inplace out of which 2 tcf is recoverable.It simply couldn’t take chance with themore risky areas principally due tofinancial risk. Apart from money, it alsolacks technology and strong manage-ment. Even for onshore, it is not possi-ble for BAPEX to embark on explo-ration work outside its present planalthough they are in the right track toattain higher international standard. Tosuggest that BAPEX should do offshoredrilling is preposterous. Even with thirdparty contract, as suggested by somequarters, the financial risk is too high.Moreover they do not have therequired management skill engaging athird party. Ridiculing Petrobangla forinefficiency/corruption, poor manage-ment and at the same time to suggestthat BAPEX be engaged in a multi-mil-lion dollar deal with a third party isunreasonable.

We are importing cars, cutting edgetelecommunication technology, severalpower plants, airplanes and many othervery expensive types of machinery.Should we attain the capability to man-ufacture all of them? The author onlyhas the experience of Economics 101(a real novice) but clearly understandsthe theory of ‘Comparative advantage’.After space technology, the next cuttingedge engineering and technology isused in offshore drilling. It is not under-

stood why Bangladesh being one of thepoorest countries should venture off-shore drilling capabilities? It will onlywaste money and time and the eventu-al cost will be much higher. Moreover,what the country will achieve by doingso? Just to avoid or for the fear ofexport, if all exploration by IOCs arestopped, what would be the price topay? To construct a very tangible lowrisk venture like ‘Padma Bridge’ thegovernment had to go to World Bank,IDB, ADB and Jaica to raise a mere $2billion. Any suggestion that Bangladeshis capable of doing its own explorationis not only irrational but also ill inten-tional. Not a single country in theworld has developed its oil-gas sectorby itself and without foreign help.

With the scanty exploration in theonshore blocks, IOCs discovered onlyabout 5 tcf gas in the last 15 yearswhere the prospects are much higher.Two wells in two frontier offshoreblocks, where no seismic data is avail-able, are extremely unlikely to produceeven a 5 tcf discovery. Let us pray forthe country’s sake that a miracle likethat happens. Moreover, awarding justthese two blocks allows us to developour offshore prospect in phases.Hopefully by next year the maritimeborder dispute with Myanmar andIndia will be resolved and a quick seis-mic survey of the entire offshore areawill give us clear idea of the futureprospects. We may then proceedaccordingly in steps.

Any contract may be questioned onmany issues but that must be based onfacts and rationale, not cynicism. Onthe basis of the PSCs being carried outfor the last 13 years in the country, theoffshore 2008 contract is well balancedand protects the interest of the country.Petrobangla has handled the existingcontracts fairly well (there is alwaysroom for improvement) and I believethat with more attention and monitor-ing they will do a good job in the futuretoo.

Dr. M. Tamim, Professor,Dept of Petroleum & MineralResources, BUET

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EP

In the backdrop of the persistent powerand gas supply crises, Bangladesh gov-ernment has recently taken two deci-

sions on offshore exploration of petrole-um in the Bay of Bengal. Santos, theAustralian exploration company hasbeen given the right to sale its share ofprofit gas to willing third party end usersinside the country. The ProductionSharing Contract [PSC] has been signedamong US oil giant ConocoPhillips,Petrobangla and GOB for exploration intwo deep sea blocks [excluding areasunder disputes neighbors]. Both the deci-sions have been disputed by a section ofcivil society claiming itself as the “Oil,Gas and Port Protection Committee[OGPC]”. This group, also claims to haveexclusive proprietary right of patriotism,is agitating against the mining ofBangladesh’s own high heating valuesweet coal for a long time. But conspicu-ously import of dirty polluting coal fromneighboring country does not botherthem or they never protest government’sextremely difficult to implement initiativeof importing expensive LNG or coal.They oppose Bangladeshi efforts inexploring petroleum resources in the Bayof Bengal. What they are up to? Who aresponsoring them? Are they really actingfor the people of Bangladesh? What is itsrepresentative strength? The situationdemands some brain storming on PSCprovisions amendment with Santos andsigning of PSC with ConocoPhillips.

Santos which bought interest of Shell-Cairn of blocks 15 and 16 includingoperations of Sangu offshore gas field.The PSC signed in mid-1990s has beenamended. After 12 years of operation,Sangu gas field is on the verge of deple-tion. In the recent times, Santos carriedout 3D seismic survey in its allottedblocks. Some potential small pay sandsaround present Sangu wells and southSangu has been located. Relatively hugeinvestment is required to tap into these

pay sands. PSC with Shell-Cairn andHolland Sea research signed in mid-1990s included a gas price mechanismwhich even was lower than the prevail-ing gas price at international market atthat time. Over the last 12 years, the costof offshore drilling has increased mani-fold. To continue further development ofSangu field, Santos requestedPetrobangla to revise cost or give themauthority to negotiate marketing theirshare of profit gas with third partiesinside Bangladesh. We have been toldthat several industries in gas-starvedChittagong are willing to negotiate withSantos directly if they get stable supply ofgas. Santos proposal indicated someearly gas by January 2012 and graduallymore and more subsequently. There areindications of gas in south Sangu,Magnama and Hatiya. Successful explo-ration and development campaign ofSantos in Chittagong is major option togas supply to Chittagong in near future.There is nothing wrong in the commer-cial decision of government in allowingSantos to third party market access of itsshare of gas. But significant works in themid-stream may need to be done toaccount for the gas in Chittagong system.

The model PSC was first used in 1974 bythe then Bangabandhu governmentwhen six IOCs were engaged in 8 off-shore blocks of the Bay of Bengal toexplore oil. The model PSC underwentseveral updating and amendment as thecountry acquired experience throughpains and gains over the last threedecades. The PSC 2008 was formulatedby a properly constituted governmentcompany taking references of many PSCsin operation in the regional countries. Anaccredited international expert examinedits pros and cons. Dr Kamal Hussain, thethen Minister of Law & ParliamentaryAffairs and later on Minister of Energy[who is also an internationally reputed

energy legal counsel] also vetted thedraft document. Finally, the draft PSCwas approved by the council of advisorsof the caretaker government. Biddinground was invited on the legallyapproved PSC during the caretakerregime. Several companies took part inthe pre-bid road show held inBangladesh. Some logical incentiveswere included in the draft PSC to attractmajor investors for deep water drilling inprospective offshore frontier ofBangladesh. But the response to the bidwas extremely discouraging. Some peo-ple thought that the strong protests byIndia and Myanmar discouraged most ofthe IOCs and even those working inBangladesh to stay away from the bid-ding. But the reason was very different.Major IOCs while considering biddinganywhere undertakes series of risk andother analysis and always go for a bank-able document. While preparing thefinancial model on the basis of draft PSC2008, it appeared to most of the leadingPSC operators that it would be extremelyrisky under present terms to invest inBangladesh offshore. That is the reasonwhy Chevron, Exxon Mobil, Shell BV, BP,Oil Search, PETRONAS stayed away.Even Santos submitted conditional bid.But surprisingly ConocoPhillips and IrishCompany Tullow submitted a little bitaggressive offer and were considered theevaluated bidders for offshore blocks.After thorough evaluation the committeerecommended for ConocoPhillips for 8blocks and Irish company Tullow for 2blocks. The caretaker government dideverything but to make award and left itfor an elected government to take deci-sion. The present government tookalmost two and a half year to re-evaluateand examine all pros and cons of thematter and finally signed PSC withConocoPhillips for the two blocks.

PSC Amendment & OffshorePetroleum Exploration

Engr Khondkar Abdus Saleque

29

COVER ARTICLE

Meantime, the model PSC remains onPetrobangla website as a public docu-ment.

As neutral observer, we find nothingwrong in concluding the PSC with aleading IOC in a legal manner. Thiswriter had the opportunity to review andcompare Bangladesh PSC with someother PSCs in operation in the regionalcountries. In many aspects like corporatetax, profit sharing matters BangladeshPSC has much stringent conditionswhich, however, should have been takeninto consideration by so called civil soci-ety. Unfortunately, a part of our civil soci-ety always opposes FDI and private sec-tor investment in exploring and exploit-ing our domestic energy resources. Onthe other hand, some beauracrats neverexplain important national contracts likePSC to general people in a transparentmanner. In this situation, ill motivatedagitators and some section of ill-informedmedia create gossip.

The PSC 2008 has not created any provi-sion for 80% export of discovered gasresources in the form of LNG. One mustknow how PSC operates. Our PSC hastwo parts. Cost recovery gas and profitgas. Any PSC operator has to make hugeupfront investment in survey and explo-ration to try and discover significantresources. After extensive study, IOC hasto provide credible evidences for a signif-icant commercial discovery. If not, IOCsexpenses are not covered under costrecovery. Offshore drilling is like a puregamble. For winning something, investorloses in many cases. Bangladesh offshoreis largely unexplored. Even not much sur-vey works have been done. Hence hugepre-exploration works and substantialinvestment is essential. If some incentivesand some market signals are not given, noIOC will consider it prudent to take risks.Bangladesh PSC has not included anyprovision which cannot be seen in otherPSCs in operation.

IOC after commercial discovery will sub-mit development plan to Petrobanglaand government. At this stage, GasPurchase and Sales Agreement (GPSA)will be negotiated. The first portion of thePSC gas comes under cost recovery byIOC. Any cost included in the budgetunder PSC is approved by a joint man-agement committee comprising of equalnumber of members from Petrobangla

and IOC. It is at this stage Bangladeshneeds experienced professionals andexperts to assess IOC proposal technical-ly and financially. Petrobangla and gov-ernment may lose if it fails to identify costelements professionally and evaluatecosts efficiently. Upon commencementof production, IOC recovers costs overand agreed period from a part of the gasselling the gas to Petrobangla underagreed price formula. Rest of the gas iscalled profit gas. The profit gas is sharedbetween Petrobangla and IOC. The prof-it share split changes as more and morecosts is recovered. The Petrobangla sharemay vary from 65-80%. This gasPetrobangla gets free. In this scenario, itis unwise to even think that any IOC cantake 80% gas under any PSC.

Now what happens if ConocoPhillipsdiscovers a huge gas reserve in its allot-ted block? If that happens where elsethan Bangladesh has huge hungry marketfor the IOC with least investment? WillBangladesh refuse to accept IOC share ofgas without using it for its own econom-ic development? Desperate Bangladeshgovernment is planning to import expen-sive LNG and coal. Will it not use its firstright of refusal? Bangladeshi and foreignindustrial entrepreauners are willing tobuy basic fuel at higher costs if available.So why worry? Any question of export toanywhere arises only if Petrobanglarefuses to buy and third party users insideBangladesh cannot buy it. Such situationis inconceivable for Bangladesh at thisstage and in near future. Provision forexport of Gas in the form of LNG is inexistence in all PSCs in Bangladesh. Butit never happened.

Some people have raised question aboutcosts involved in building expensive250KM+ submarine pipeline to bring gasto onshore. IOC even to set up LNG plantonshore will invest in case of substantialdiscovery. Offshore floating LNG termi-nal concept will not work here. Reliancediscovered a large gas field in KG basin.It has not set up LNG plant or not export-ed gas.

Bangladesh in PSC 2008 included provisionof corporate tax to be paid by IOCs. It willincrease investment and prolong cost recov-ery. One must remember IOCs will recoverany investment made whether it is capitalexpenditure [capex] or operating expendi-

ture [opex]. One must rememberBangladesh does not have capacity [techni-cal or financial] to carry out exploration inoffshore. No bi-lateral or multilateral donoror development partner provides grant orloan for exploration. Bangladesh could notexplore petroleum in deep waters of the Bayof Bengal despite of aggressive explorationcampaign of neighbors in adjacent territori-al and disputed waters. The opposition toBangladesh efforts will strengthen the handsof neighbors who, according to many, havealready encroached Bangladesh territory.The resolution to maritime boundary dis-pute may take 5-7 years. In the meantime,Bangladesh must try and explore in undis-puted areas. The PSC 2008 has lot of safe-guards of Bangladeshi interest. The provi-sions are well drilled successes in regionalPSCs.

But our concern is whether Petrobanglain its present shape can effectively moni-tor PSC operations in matters of technicalauditing and cost control? Do they havefinancial experts to carry out financialmodel or evaluate financial model ofIOCs development plan submission. Itneeds qualified experienced costaccountants and petroleum/ reservoirand production engineers. DoesPetrobangla have such expertise?Bangladesh loses under PSC due to itslack of capacity in managing and moni-toring PSC operation. The governmentmust arrange training and capacity build-ing of gas sector professionals for reapingbenefits under PSC.

OGPC excesses backed up by someperipheral left leaning political partiesare among other reasons for the presentgas and energy crisis. By creating unnec-essary barriers and impediments tonational efforts of exploring and exploit-ing own fuel resources, OGPC is servingthe energy mafia syndicate which isthriving on import of dirty polluting coalfrom across the border. They are confus-ing society and misguiding governmentpolicy makers. The elected governmentmust work for the greater interest of thecountry and the people.

Engr Khondkar Abdus SalequeEnergy Specialist, AEAI, Sheberghan Gas Fields DevelopmentProject, Kabul, Afghanistan

EP

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31

Industries Minister Dilip Barua hasproposed formation of a GreenEnergy Fund for climate change in

order to enhance energy capacity ofthe developing countries.

He also informed that Bangladeshgovernment has taken a number ofsteps on attaining energy safety in thecountry.

The minister was speaking at aroundtable titled “energy for all-timefor action” at the Vienna EnergyForum 2011 in Vienna’s HofburgHotels.

UN Industrial DevelopmentOrganization (UNIDO) in associationwith AustralianFederal Ministryof European andI n t e r n a t i o n a lAffairs andI n t e r n a t i o n a lInstitute ofApplied SystemAnalysis (IIASA)organized the pro-gram.

Reneta Christ,Secretary ofIntergovernmentalPanel on ClimateChange, RohitKhanna, ProgramManager of World

Bank, Vincent Kitio, chairman of UN-Energy Africa, NH Ravindranath,chairman of Global Energy Facility’sScientific and Technical Panel, alsoaddressed the program.

Addressing at the program, industriesminister said considering the realityBangladesh government has giventop priority on green industrializationin the country.

“We encouraged setting up knowl-edge based hi-tech industries withzero pollution. Our government hasadapted renewable energy policyand extended renewable energytechnology to the rural people tomeet their energy needs,” he said.

He said Bangladesh government hasset targets for developing renewableenergy resources to 5 percent of totalpower demand by 2015 and 10 per-cent by 2020 to achieve the goal.

“The government also exempted taxon solar energy equipment to makethe use of solar energy more popularand has formulated an energyroadmap to increase the power gen-eration to 20,000 MW by 2020 toensure uninterrupted and qualitypower supply for all throughimprovement in generation, transmis-sion and distribution system,” Baruasaid.

The world leaders in their speechesemphasized on 3pillars--economic,env i ronmen ta land social sus-tainability andenergy–for sus-tainable develop-ment and povertyreduction efforts.

The 3-day roundtable is likely toadopt a workingplan on how toeradicate dilem-ma of energy sec-tor created by cli-mate change.

Call for Green Energy Fund toEnhance Energy Capacity

EP Report

EP

Ministerial meeting on Energy & Green Industry at the Vienna Energy Forum 2011 in Vienna’s

Hofburg Hotel. Photo: Internet

33

The country has achieved a signifi-cant growth in renewable energy

use especially of solar energy with thenumber of solar home system (SHS)installations crossing over 1.0 millionuntil last month.

Supportive multilateral donor agencies,proactive role of local firms and moti-vation by a pool of professionals areleading the surge in renewable energyuse across the country.

In 2003, the country had only some20,000 units of SHS installed, whichsoared by 50 times within eight years,available data revealed.

Utilization of wind energy, biomassenergy and micro hydro use are alsogetting pace in Bangladesh where 51per cent of the total households still donot have power connections.

"The growth in SHS use in the countryis amazing," said IDCOL Company

Secretary S.M. Formanul Islam.

Infrastructure Development CompanyLimited (IDCOL), a state-run non-bank-ing financial institution, is the mainlender to local renewable energy com-panies.

The IDCOL initiated funding to its part-ner organizations to install SHS forrural people in 2003 with a target toinstall 50,000 SHS by 2008.

"But we have achieved the target withsupport from our partner organizationsthree years before the deadline in2005," said Islam.

The IDCOL alone has helped installing940,000 SHS across the country untilMay 2011, he said.

"Encouraged by the recent success wehave set a target afresh to enhanceinstallation of SHS to 2.5 million by2014," said the IDCOL company secre-tary.

The IDCOL is now installing 42,000more SHS every month, he said.

The IDCOL receives grants and loansfrom different multilateral donor agen-cies including the World Bank (WB),the Asian Development Bank (ADB),the Islamic Development Bank (IDB),the United Nations DevelopmentProgram (UNDP), the German KfW toprovide funding assistance to its partnerorganizations.

It lends funds to some 30 partner organ-izations offering interest rates between6.0 per cent and 8.0 per cent toencourage renewable energy useacross the country.

Among the renewable energy firms, theperformance of Grameen Shakti, one ofthe 30 partner organizations of IDCOL,has been outstanding in promotingrenewable energy use.

Bangladesh Achieves MarkedGrowth in Renewable Energy Use

EP

India is on track to produce 700megawatts of solar power at a cost of

$2.2 billion by December, ahead of aninitial target for an ambitious plan thatseeks to boost green power generationfrom near zero to 20 gigawatts (GW) by2022.

Under India's Solar Mission, investorsbid to build solar power plants and thewinning bids are determined by theelectricity tariff that they accept asviable. Such has been the interest thatthe government has been flooded withinvestment pledges for the first batch ofprojects rolling out in December.

India's 20 GW solar plan is likely toattract overall investment of about $70billion, the government has estimates.Issued in 2009, the plan envisagesIndia producing 1,300 megawatts(MW) by 2013, another up to 10 GWby 2017 and the rest by 2022.

India Set toProduce 700 MWSolar Power in 2011

EP

State minister for Energy and PowerMuhammad Enamul Haq has said

that promoting green-architecturaldesign of building particularly inreadymade garment (RMG) and textileindustries could save a significant sizeof the national energy.

“More than 40 percent of total energyis being used in industrial buildings.This amount can be minimized signifi-cantly by using green architecturaldesign in the industrial belt speciallyRMG and textile sector,” he said.

Enamul Haq, as chief guest, was inau-gurating a two-day workshop titled,‘Performance Based Design:Introduction to Computer BasedLighting Simulation Techniques,’ atraining program on promoting greenarchitecture concept in the country.

Department of Architecture atBangladesh University of Engineeringand Technology (BUET) organized theworkshop at the Council building ofthe university in collaboration withDeutsche Gesellschaft fuerInternational Zusammenarbeit (GIZ).

The state minister said that energy sav-ing basically means saving the cost byadopting green strategies in the indus-tries that ultimately could help mini-mize manufacturing cost and helpboost the economy.

BUET pro vice-chancellor (VC) Prof MHabibur Rahman, Prof Dr ZebunNasreen Ahmed, chairman of theArchitecture department, among oth-ers, addressed the inaugural sessionwhile BUET VC Prof SM Nazrul Islampresided over the session.

Green Architecture Seen toSave National Energy

EP

34

The Bangladesh Bank in a circularmade it mandatory for banks which

want to finance the SME and agricul-tural projects to set up solar powerpanels for providing electricity.

BB’s circular mentioned that if anybank plans to open a new branch tofinance projects in the agriculture orsmall and medium enterprise sectors,they should inform it whether solarpower panels are available there toprovide power to the branch.

The BB will not allow any bank toopen any such branch without installa-

tion of solar power panels.

The circular containing the new direc-tive has been sent to all the chief exec-utive officers of the banks.

The circular said that the new branch-es should be environment-friendly, andshould prioritize the effective use ofsunlight, the use of renewable energy,energy-efficient bulbs and machinery,along with proper use of water.

The new directives are in line with theimplementation guideline of ‘greenbanking’ which was announced lastFebruary.

Solar Power Must For New SME,Agriculture Branches: BB

EP

Fishermen in the char areas are nowenjoying solar power in three upazi-

las -- Phulbari, Nageswri and Chilmari.

At least 70 ultra-poor families at 13 vil-lages are receiving the facilities. Theyare happy as they got 20-watt power ineach of their houses.

The villages are West Dhanirum, KutiNagorajpur, Bhangamor, Ajoatari,Anatapur and West Phulmati underPhulbari upazila, Kumandopur, Katgiriand Char Kapna under Nageswariupazila and Khamer, Wari, Bhatto Paraand Char Bailbandiarkhata under

Chilmari upazila.

RDRS-Bangladesh, anNGO, did the great jobby giving solar powerunits free of cost amongthe families. The marketvalue of each solar unitis Tk 12,500.

Moniruzzaman Monir,technical officer of theproject of this NGO,said "We are distribut-ing solar power unitsfree of cost among theultra-poor fishermenfamilies who live inremote char areas andwho are members ofour Village DisasterM a n a g e m e n tCommittee (VDMC)."

Fishermen in KurigramChars Get Benefit

EP

The European Commission has put itsfull weight behind a new target to

raise the share of renewables in the con-tinent's energy mix by 2030.

The security that this would provide topotential investors was "more importantthan ever", EU Climate ActionCommissioner Connie Hedegaard told alaunch of the Intergovernmental Panel onClimate Change (IPCC)'s renewable ener-gies report in Brussels.

Hedegaard spoke favorably about arecent call by the renewables industry fora legally-binding target of 45% renew-ables by 2030, but stopped short ofendorsing it.

"Where exactly the figure will be, weshould discuss and analyse," she said."But I will say that I will do whatever Ican to get this discussion reflected in theenergy roadmap that will come out laterthis year for 2050."

In March, Energy Commissioner GüntherOettinger told EurActiv that in this docu-ment, the Commission would propose "along-term target for 2030 and 2040 and2050 and there will be a higher target forrenewable energy".

Speaking in a videotaped address to theconference, he said that Brussels had toconsider renewables targets for 2030 ifclean energy growth was to be contin-ued.3"The renewable energy industry hasalready called for 45%," he said. "Ourcurrent work will review all the literatureand explore different possible pathwaysfor the European Union."

The European Commission's president,José Manuel Barroso, added his voice tothe fray, telling the meeting that "2020 isalready around the corner and we needto think of intermediate steps up to2050".

"We need not only to think but to act," headded.

EC Renews Push for2030 RenewablesTarget

EPFishermen in the char areas are enjoying solar power

Electricity Sector is certainly one ofthe most important infrastructuresfor our sustenance and steady

growth as a developing country.Neglecting this sector can be very expen-sive and can cause serious present andfuture problems. Unfortunately we arenot applying our thoughts and decisionmaking process appropriately. Ad-hocand temporary measures are being takento overcome the problems encountered.Whereas all measures including the tem-porary once must fit into a well plannedmaster plan for the sector. By master planwe do not mean a big book prepared bythe foreign consultants for 10, 15 or 20years duration. It is a coordinated actionplan to be implemented in phases. Wereckon no huge investment is needed forimprovement of this sector. A enumerat-ed below are some of the suggestions tobe incorporated in a well produced planfor the sector. By no means does theauthor claim to be an expert on everyaspect associated with electricity sector.But my long association with this sectorinvolving close and active participationin electricity sector in several countries Iventure to suggest certain points for con-sideration of those who are in the posi-tion of authority in the sector at present.

Recruitment of Management PersonnelAll members / Managing Directors with-out exception in every corporation /autonomous body in this sector must berecruited in the same way as is practicedat present in some of the company likePGCB, DPDC, DESCO etc.. This is theonly way to get the services of best of theavailable talents in the country.Extension of tenure of no Director /Member shall even be considered.Granting personal favor at the cost ofimprovement of electricity cannot beacceptable.

It is the leader who leads the organiza-tion for its success or failure. Without agood general, winning a war cannot beexpected. All the employees, engineersand officers must be united to fight a waragainst malfunctioning, inappropriatedecision making, procrastination and all

other such ailments. At present theemployees do not know where theystand and what the future holds for them.

An Integral Part of The NationalPlanning And Efforts

Any sector including electricity sectorcannot be in isolation from the overallneeds, requirements and planning of thecountry. Through installation of so manyrental power plants at scattered locationsusing imported liquid fuel has increasedthe import requirement of the country ingeometrical progression. We cannotafford to allow such increase in importbill. Our foreign exchange reserve hasbeen depleted to a dangerously lowlevel. Load shedding for 1 or 2 hour iscertainly irritating and causes a lot ofinconvenience but imbalance in tradeand rapid depletion of foreign currencyreserve is causing sliding down of valueof taka. This is creating numerous prob-lems to the nation as a whole. We mustconsider the impact of any such decisionto our not so strong economy. Our exportperformance is primarily based on RMGwhere value addition is not that high.Export of man power is not likely toincrease soon. Country first then therequirement of a particular sector likeelectricity.

Uncertainty in Reorganization Process Several years ago a process of reorgani-zation making BPDB as the principleholding company was started. This hascertainly stagnated and consequently notangible benefit is being derived. Theemployees do not know what lies forthem in future. They come to the officeand without much work leave at the endof the day. Whereas the entire work forcemust act in unison to improve everyaspect including distribution and sale ofelectricity.

Notional Decision MakingDecisions to install major power plants ata cost of Millions of Dollar are taken onan ad-hoc basis on the personal impres-sion of some high up in power. Installinga large power plant at Bibiyana or powerplants at Bagerhat and Chittagong arebased on superficial knowledge and

whims. All such decisions must be madeon proper feasibility studies.

Constructing a gas pipe line fromBibiyana to Ashugonj and installing apower plant of adequate capacity atAshugonj would have reduced the totalinvestment very considerably. Severalhigh voltage transmission lines alreadyexist to transfer power to load centersfrom Ashugonj. The second east westinterconnector over the Jamuna Bridgeemanates from Ashugonj. No new trans-mission line construction would havebeen needed. Whereas it was decided tobuild a large power plant at Bibiyanaleading to construction of two large newhigh voltage line towards load centeraround Dhaka and Comilla.

Importing coal from abroad for runningpower plants is an utopian idea. The coalimported from India for Barapukuriapower plant remains stored without use.The per unit cost of electricity producedat Bagrehat or at Chittagong using coalimported from Indonesia or Australia (ifavailable) would be very high indeed.Whereas ad-hoc decisions were taken toinstall large power plants at those twolocations instead of installing them nearthe coal mines in Dinajpur.

Electricity sector cannot be operated atthe discretion and whims of amateurs.

Training & EducationUnless our engineers and technicians areproperly trained to transport, store, washand use coal and to efficiently operatecoal fired steam power plants we havelittle future in electricity sector. Usingindigenous coal for power generation isthe only way to improve power sector.Simple graduate engineers working inthe office and placing unwilling engi-neers and technicians at the power plantsmostly against their wills will not be ableto improve power sector.

It is essential to make separate, attractivepay packages for the power plantemployees. Select the best and trainthem properly if we are to produce largequantity of electricity using coal as a fuel.

I have more suggestions and those I hopeto submit for consideration of readers infuture.

Shamsul Islam Former Chairman, BPDB

Ailing Electricity Sector Shamsul Islam

EP

35

ARTICLE

The Samutang Gas Field inKhagrachhari went into operationunder the management of the

Bangladesh Petroleum Exploration andProduction Company Limited (BAPEX).

Around 17 MMCF (Million Cubic Feet)gas per day will be extracted from thefield through the new well number 5reducing existing gas crisis inChittagong Zone, Dr. Hossain Mansur,Chairman of Petrobangla said.

The Karnaphuli Gas Field CompanyLimited has already completed laying30 km pipe line for supplying gas toChittagong from Samutang field. Thelaying of another 35 kms pipe linewould be completed soon, he said.

"Hopefully we would get 20 MMCF gasfrom the well regularly that will helpimprove overall gas situation inChittagong region,” the Chairman saidadding the Petrobangla has taken up amassive plan to increase gas supply tothe port city from next October.

Dr Hossain Monsur said in order toaugment gas supply to Chittagong, theyare installing another 80 kms pipe linefrom Samutang gas field to supply 30MMCF more gas to this zone regularly.

Md Golam Mortoza, ManagingDirector of BAPEX said they have aplan to drill another well on Samutanggas field for improving the gas supply tothe area. He said, hopefully, countrywould get 40 MCCF more gas regularlyfrom this field in future.

The zone needs around 200 millioncubic feet (MCCF) gas a day to stimu-late the economic activities in theregion.

According to FBCCI, about 200 bigindustries failed to run because of gasshortage.

The investors have been facing serious

problems to run their business inChittagong due to non-availability ofgas and power. The power plants situ-ated in Chittagong are not getting ade-quate supply of gas.

"Rawzan and Sikalbaha, two big powerplants have been facing severe gasshortage and thus failing to generateelectricity to their capacity, a PowerDevelopment Board (PDB) official said.

According to him these power plantsare producing around 200 MW elec-tricity against their 857 MW capacity."We are giving top priority to increasinggas supply to Chittagong , so we havetaken some augmentation, pipelineinstallation and new drilling pro-grammes there," Dr. Monsur said.

He said with the help of internationaloil company Santos, Petrobangla hastaken up plans to drill three wells."Hopefully we will supply an addition-al volume of 50 to 60 MMCF gas perday from Sangu gas field," he added.

Sangu field has been supplying only 17MMCF gas regularly. The Petrobanglachairman said Sangu can supply up to500 MMCF per day, but that needshuge investment.

37

REPORT

State Minister for Science and ICTYeafesh Osman has urged thestates to establish an emergency

crisis management centre to dealwith nuclear contingencies for thedeveloping countries especially forLDCs.

He made the call at the ministerialconference on Nuclear Safety atInternational Atomic Energy Agency(IAEA) in Vienna. All the nuclearpowers and important stakeholdersare attended the event.

The minister suggested exchange ofinformation at the time of emergencythrough an institutional structureunder IAEA to ensure flow of vitalinformation.

He said that nuclear technology isstill clean and reliable source of ener-gy for the humanity.

Yeafesh said Rooppur Nuclear PowerPlant is the flagship project of thegovernment taken to implementsoon. He stressed the need for aninternational and regional coopera-tion to ensure the highest and most

vigorous level of nuclear safety basedon IAEA's safety requirements.

The conference has been organizedto draw on the lessons from the acci-dent at the Fukushima Daiichi, Japanto strengthen nuclear safety through-out the world and contemplate onthe possible future actions.

Earlier, State Minister Yeafesh Osmanmet Sergey Kirienko, former primeminister of Russia and the DirectorGeneral ''Rosatom'', the StateCorporation of Russia, the renownedRussian nuclear technology provider.

Kirienko assured the minister ofRussian full support in the quest ofBangladesh towards civil nuclearprogram.

He also had a courtesy call on DinhTien LE, vice minister of Science andTechnology of Vietnam. They empha-sized the mutual cooperation andexchange of experience and knowl-edge as both the countries areembarking on the path of nuclearenergy.

Vienna Nuclear Safety ConferenceDhaka for Crisis Management

EP

EP

Samutang Gas Field GoesInto Operation

EP Report

The government has decided togenerate electricity from naturalgas condensate apparently in a

desperate move to diversify the coun-try's energy sources for electricity gen-eration and ease its mounting demand,a top official said Sunday.

State-owned Bangladesh PowerDevelopment Board (BPDB) hasalready floated tender to select a con-sultant to facilitate installation of thecondensate-fired power plants.

"We are now scrutinizing bids fromseveral firms to appoint as consultant tohelp set up the country's first conden-sate-based power plant," said BPDBChairman ASM Alamgir Kabir.

He said the country has huge prospectsto generate electricity from the gas con-densate, now available at different gasfields as by-product.

Kabir, however, did not say anythingabout the capacity of the planned con-densate-fired power plant.

Currently, the country's average dailycondensate output is around 6,475 bar-rels from 19 operating gas fields acrossthe country, a senior Petrobangla offi-cial said.

With the augmentation of natural gasproduction, the condensate output isalso increasing day by day.

Petrobangla, which is now strugglingwith the growing condensate output ascurrently the country does not havemuch scope to utilize this huge gas by-product, has welcomed the BPDBmove to build condensate-based powerplants.

"It will help check wastage or pilferageof a huge volume of condensate," saidPetrobangla Chairman Dr HussainMonsur.

Currently, a very limited quantity ofcondensate is being refined at state-

owned Eastern Refinery Ltd (ERL) toproduce diesel octane.

Condensate is also being used inKailashtila natural gas liquid (NGL) orcondensate fractionation plant to pro-duce sulphur and lead-free and envi-ronment- friendly liquefied petroleumgas (LPG), motor spirit (petrol) anddiesel.

The capacity of ERL and Kailashtilaplants is limited, and a significantquantity of condensate is being export-

ed outside the country, said aPetrobangla official.

A 'strong' syndicate is active in pilferingcondensate by making leaks in the con-densate-carrying pipelines, he said.

State-owned Gas TransmissionCompany Ltd (GTCL) could not stopcondensate pilferage even after hiring aprivate security firm, said a GTCL offi-cial.

Officials said once appointed, the con-sultant will recommend capacity, typeand location of power generating unitsto be run on gas condensate.

The firm concerned will also suggestelectrical interconnection and poweroutflow arrangement for the plannedcondensate-fired power plant

Govt to Set Up Plant to GeneratePower from Gas Condensate

EP Report

EP

38

REPORT

Over 100 companies including 25from overseas will be participat-

ing at the twin internationaltradeshow on Supplementary PowerBIG EXPO Bangladesh and 5th editionof Architectural, Building &Construction Products & TechnologyTradeshow BACE Expo 2011.

New products, new materials andmachinery with latest technology willon display from some of the leadingcompanies of Bangladesh as well asexhibitors from overseas countries likeIndia, China, Singapore, Pakistan etc.The 4-day long tradeshow will be

held on July 6-9at BangabandhuI n t e r n a t i o n a lC o n f e r e n c eCentre.

Saif Power TechPresent BIGEXPO ofBangladesh, theI n t e r n a t i o n a lB a t t e r i e s ,Invertors and Generators Expo ofBangladesh, is being organized to cre-ate a platform for all the stakeholders

involved in the area of alternatepower generation, transmission anddistribution to come under one plat-form to explore the possibilities ofproviding alternate power generatingsolutions to the trade and industrylooking for additional alternate poweroptions.

The maiden edition of the show isbeing organized by ASK Trade &Exhibitions Pvt Ltd India and ZakariaTrade & Fair International Bangladesh.At BIG EXPO of Bangladesh,Companies will be displaying theirtechnology, know-how and products

and services andexplore the busi-ness potential inB a n g l a d e s h 'sone of the mostpromising andhighly potentialindustry sector.Nearly 60 com-panies fromB a n g l a d e s h ,

India, china and Singapore are partic-ipating in the show.

Big Expo 2011 & BACE Expo 2011

EP

German federal minister for eco-nomic cooperation and devel-opment Dirk Niebel has

emphasized on creating congenialenvironment for investment inBangladesh with no corruption and lowbureaucracy. “We are looking at waysto increase the attractiveness of yourcountry for our investment,” he said,after a meeting with finance ministerAMA Muhith here recently.

Niebel led a 32-member delegation toBangladesh, including the EuropeanUnion commissioner for developmentcooperation Andris Piebalgs, whocalled for fixing energy problem toattract long-term foreign investment.

The delegation during their four-dayvisit raised the issues as the FinanceMinister urged Germany and other EUcountries to invest in Bangladesh'sweak infrastructure sector, includingenergy, power and transportation.

They urged the government ofBangladesh to expedite implementa-tion of the donor-funded projects.

"We find the implementation process ofdonor-funded projects to be very slow.The government takes much time togive approval to theprojects," Andris tolda press conference inthe city.

"We have requestedthe finance ministerto implement ourprojects fast," he said,adding that tradebetween EU andBangladesh isincreasing signifi-cantly. "We can helpdevelop the privatesector in the country."

The delegation heldhigh-level politicaltalks during the visit

and extended full support for the coun-try's development. They had meetingswith Prime Minister Sheikh Hasina,BNP chairperson and opposition leaderBegum Khaleda Zia, State Minister forEnvironment Dr. Hasan Mahmoud andmembers of the civil society, whenissues of mutual interest on invest-ments, development cooperation andclimate change were discussed.

The visit concluded with field visits to anumber of development projects sup-ported by Germany and the EuropeanUnion in the fields, including a renew-able energy project in Satkhira. The dis-tribution of solar energy plants and theuse of energy efficient stoves contributeto the overcoming of the energy crisisand show new ways of sustainable useof resources — an essential question inthis country which is highly affectedand threatened by climate change.

As important trading partners, theEuropean Union and Germany supportimproved social and environmentalstandards in Bangladeshi industries, forinstance in the garment sector.

As they called on the Prime Minister,Hasina expressed her gratitude forEuropean support in holding electionsand requested for it to continue.

After the talks, German minister Niebelsaid, "Germany has supportedBangladesh since its independence.Bangladesh is a very dynamic develop-ing country. I am deeply impressed bythe successes it achieved in these pastyears." He said that poverty and childmortality rates decline and economicgrowth has been remarkable for 20years. Through my visit, I would like toencourage our partners to continue thereform path and invest in good gover-nance in order to realize the hugedevelopment potential of the country.“I promise our Bangladeshi partnersthat the continued support of theGerman Federal government.”EU Commissioner Piebalgs added, "TheEU has been a longstanding supporterof Bangladesh as it has been achievingremarkable economic growth, a goodtrack record for achieving theMillennium Development Goals, and areputation as a vibrant democracy. Itwill continue its support as Bangladeshaims to become a middle incomecountry by 2021."

Piebalg clarified, "As Bangladesh'sbiggest export destination, the EUimported 6.6 billion euros worth ofgoods from Bangladesh in 2010.

Investors from the EUare increasinglyseeking opportuni-ties in and withBangladesh. In orderto promote evenstronger economiccooperation andgrowth, the EU seeksto assist theGovernment ofBangladesh in itsefforts to strengthendemocracy, rule oflaw and the fightagainst corruption."

39

SPECIAL REPORT

EP

Fix Energy Problem to Attract FDIEP Reoport

German Federal Minister for Economic Cooperation & Development Dirk Niebel & European

Union Commissioner for Development Cooperation Andris Piebalgs Meet with Prime

Minister Sheikh Hasina at her Office

South Asian countries are facingthe power crisis. The demand forelectricity has increased over time

because of industrialization, urbaniza-tion and modernization. But, the sup-ply has not kept up pace with thedemands. There obviously is a big dif-ference between the demand and sup-ply of electricity. The duration of loadshedding could be different in differentcountries, but is a normal routine thatslows the efficiency of the economy.

Some countries like Nepal face anacute problem of load shedding, wheresupply of energy varies by season.Seasonal variation makes the powersupply under threat, while the demandkeeps growing continuously as the useof electricity increases in the house-holds, commercial, service and indus-trial sectors. The consumption of elec-tricity in most of the member countriesof South Asian Association for RegionalCooperation (SAARC) varies. Everycountry has power surplus and deficitby season. Some countries in the regionhave power surplus such as Bhutan,while others face power shortage.Climatic variation in these countriesplays an important role in makingexcess/deficit supply of electricity.

Looking at the pattern of load shed-ding, the phenomena has become aregional problem. Non-existence ofpower trade mechanism between theSAARC countries is the main barrier toimport/export power during deficit/sur-plus of energy to maximize its use in arational and efficient way. Power tradebetween these countries could facili-tate the enhancement of the regionaleconomy. This trade between andacross the countries, if realized,expands the scope of economic devel-opment of the region.

Whatever electricity is being generatedat the present time, and what could beadded in the future in the region callsfor optimum utilization. A country with

surplus electricity could export it to apower deficit country. In this manner,no country in the region would face thepossible power crunch.

Nepal is facing an acute problem ofpower shortage that makes a daily rou-tine of load shedding ranging from anhour to 14 hours a day.

The variation in season is also differentin each country. It means some areconsuming more power than othersduring a particular season. Forinstance, India’s power demand insummer is more sensitive than in

Nepal, while power demand in winteris more sensitive in Nepal than in India.India has power surplus during the win-ter season, while Nepal has it in latesummer. Both Nepal and India canexport their surplus energy to eachother during the respective seasons.

Similar is the case of Bangladesh,Pakistan and Sri Lanka. Every countryin the region has the realisation thatenergy trade between and across thecountry is a must for accelerating thepace of economic development, andensure energy security in the region.

For this to happen, countries of theregion should have a strong will andcommitment for power trade throughregional cooperation. Each countryshould have to take the initiative forarriving at consensus on the issue

among the SAARC member countries.

Each country should have to pay atten-tion to the modality including fundingsources, conducting feasibility studyand generating electricity through vari-ous sources (hydro, solar and wind).Development of the sources mostviable in terms of investment cost, rateof return, comparative advantage etc.

Ideally, India should take the leader-ship to undertake power trade amongthe SAARC countries, because it is veryrich in resources with almost doubledigit economic growth rate. Despite itshigh installed capacity, India facesenergy shortages in the range of 10 percent during peak hours. As is expected,a credible idea has been floated byIndian Minister of State for Power KCVenugopal in relation to power tradebetween India, Bangladesh, Nepal,Pakistan and Sri Lanka. This idea isabout a construction of regional powergrid linking these countries which hasthe potential to create 1,00,000 MWcapacity in the region. To put the ideainto action, SAARC member countriesshould have to take the initiative, andfully support the idea floated by theIndian power minister. A regional insti-tutional hub under the SAARC as themain implementing agency to under-take the initiation to put the idea intoaction needs to be created. The bodyfor such should comprise of one mem-ber from each SAARC country, and itwould be responsible for creating fund,construction of regional power grid,coordinating and advising on the mat-ters of fund-raising program to the gov-ernment concerned, determination ofcost share to be contributed by eachparticipating country on the basis ofbenefit they will receive.

This idea of SAARC power grid wouldintegrate the regional power market,and a powerful means to supply powerduring the crunch in the entire region,and harmonize ties among the coun-tries of the region.

Nepal, which is facing acute powershortage among the countries of SouthAsia, should take the initiative to putthis idea into action.

41

REGION

SAARC Power Grid Dr. Kamal Raj Dhungel

EP

Acertain group of the country haslong been pursuing an anti-PSCmovement based on an irra-

tional perception, although there isnothing against the interest of the coun-try. The Bangladesh PSC has ensuredthe ownership of the people on the oiland gas resources as well as protectedthe sole authority of Petrobangla incontrolling the use of oil or gas to beextracted. The contracting companyunder the PSC does not have thisauthority. Associate Professor of Law ofChittagong University Dr Abdullah AlFaruque has expressed the view in anexclusive interview with EP EditorMollah Amzad Hossain.

Dr Faruque has obtained PhD onStability and Risk Management inPetroleum Contracts from the Centrefor Energy, Petroleum, Mineral Law andPolicy (CEPMLP) of the University ofDandy in the UK. Following are theexcerpts from the interview:

EP: A certain group within the countryhas long been criticizing the efforts toexplore oil and gas through appointingIOCs under PSC on consideration thatit would affect the country’s interest.What do you think?AAF: It cannot be answered in a singleword. Exploration of oil and gas underPSC is being carried out in almost allthe developing countries. About 60-70countries are following the PSC system.Even developed country like Russia, isalso following the system.

There are some risks associated withthe process of exploration and devel-

opment of hydrocarbon. These are geo-logical, and commercial risks.Geological aspects of petroleum con-tracts may give rise special kinds ofrisks resulting from varying degrees ofuncertainty associated with the physi-cal characteristics of petroleum opera-tions. The main unknown geologicalfactors and uncertainties in petroleumexploration relate to the discovery, thesize of deposit, and the economic via-bility of development. Petroleum con-tracts are also vulnerable to commer-cial risk such as changes due to futureprice developments, error about thefuture technology and market develop-ments as well as ordinary commercialrisks occurring through fundamentalchanges of circumstances which arebeyond the control of the parties. PSCis a better mechanism to distribute therisks and benefits arising out of thepetroleum operation. However, most ofthe risks are borne by companies, notthe host government, under PSC systemuntil they found commercial discoveryof oil and gas after making huge invest-ment.

The popularity of the production-shar-ing concept amongst the developingcountries lies for its political appeal ofownership of resources since PSC sys-tem vests all hydrocarbon discoveredin the host state. Here, the companiesare considered merely as the contrac-tors. The companies take all the risksand get only a part of the profit gas inthe event of successful commercial dis-covery. Bangladesh has adopted thissystem. The PSC is also popular for

both the host states and companiesmainly for its flexibility in its negotia-tion process and its proven effective-ness and adaptability in very differentsettings.

Now the question is that why the for-eign companies are being broughtunder the PSC for oil and gas explo-ration. Because, petroleum explorationis highly capital intensive, risky andrequires necessary technological sup-port. Bangladesh does not have capac-ity and required technology to take therisks, in particular in case of offshoreexploration. I do not see anything

Dr Abdullah Al Faruque

“PSC Has Nothing Detrimentalto Bangladesh’s Interest”

43

INTERVIEW

Bangladesh had gainsfrom the PSCs. BAPEXhas acquired onshore

exploration capacity due tothe exploration works underPSCs or technical supportsfrom the friendly countries

harmful in the PSC. Rather, the recentlyconcluded PSC for exploration of off-shore fields is more rational from eco-nomic point of view and to meet ourgrowing energy demand. It must beadmitted that we could not developPetrobangla for lack of political will.Hence, we have no alternative to IOCsat this moment.

EP: How do you evaluate the country’sfirst Model PSC formulated immediate-ly after formation of Petrobangla in1974, following the PSCs of othercountries specially Indonesia? Six com-panies have been awarded for explo-ration of gas and oil in the Bay ofBengal under the first PSC.

AAF: It was very timely initiative. ThePSC system introduced by Indonesia in1966 had gained instant popularity.The then visionary leader of the newlyindependent Bangladesh did not alsohesitate to take the progressive step.But we could not make much head-way, despite being first in the region toadopt the system. Although it was pos-sible to formulate the Petroleum Act1974, form Petrobangla and procure 5gas fields from Shell BV, the progresscould not be continued due to thepolitical changes of 1975. We alsocould not yet amend Petroleum Act1974 to incorporate the environmentaland social issues of petroleum opera-tions. Petrobangla could not be devel-oped like PETRONAS or other state-owned enterprises. I think these hap-pened due to lack of political commit-ment.

EP: What do you think about awardingfew blocks to IOCs in 1988, 1992 and1997 through various changes in thePSC?

AAF: All the PSCs so far signed inBangladesh have been concluded in atransparent manner. Around 50% of thecountry’s gas demand comes throughthe PSCs while developing skills of thelocal manpower. They have definitely apositive impact on Bangladesh. Thereis no justification in this situation todemand by a certain group to scrap thePSCs. However, I don’t think it wasright to hand over Jalalabad Gas Fielddiscovered by Scimitar and later owned

by Bangladesh to Occidental underPSC. It was not an appropriate deci-sion.EP: How Bangladesh has been benefit-ted or lost through allowing IOCs tooperate in Bangladesh under PSCs?

AAF: Overall, Bangladesh had gainsfrom the PSCs. BAPEX has acquiredonshore exploration capacity due tothe exploration works under PSCs ortechnical supports from the friendlycountries. Local manpower have gotthe opportunity of higher training asPSCs have the provisions for trainingand employment of local people. Thelocal manpower got opportunity towork in International Companies. Theyalso acquired technical knowledgefrom the contracting companies operat-ing here.

EP: What do you say about thedemands and statements by OGPCagainst the PSC agreement withConocoPhillips?

AAF: They are staging demonstrationon the basis of a misconception. Theyare arguing that all the gas will beexported. This is not correct. After com-mercial discovery, Petrobangla willhave the first right of refusal. If there isnot enough gas demand in the country,or Petrobangla cannot buy the gas forany reason, the IOC will have to salethe gas to third party insideBangladesh. If that even does not hap-pen, the IOC may export the gas withthe approval of Petrobangla after con-verting it to LNG. Furthermore, estab-lishment of LNG requires separateagreement with the Petrobangla.Therefore, under the PSC, export of dis-covered gas is only remote possibility. I consider that export of LNG after set-ting up of a LNG plant and associatedfacilities will not be commercially fea-sible unless 15-20tcf gas is discoveredin two offshore blocks. LNG is hugeinvestment intensive. We must remem-ber that the Bay of Bengal has somepotential for discovery of Petroleum.India and Myanmar are exploring forPetroleum through engaging IOCsunder PSC in the region. WhyBangladesh should in the Bay ofBengal?

We had invited bids for 28 offshoreblocks. Some companies respondedtoo. But due to the maritime boundarydisputes with neighbors, it was possibleto conclude PSC with ConocoPhillipsfor 2 blocks only. This exploration willassist Bangladesh’s claim for its lawfuldemand over maritime boundary in theongoing arbitration process in the Lawof the Sea Tribunal in someway.

Generally PSC for offshore explorationprovides more incentives to the compa-nies due to higher level of risks andcapital involved in such exploration.Compared to others, our model PSC,2008 is not too much attractive for thecompanies as it offers few incentives tothe companies except provision forexport. For instance, under the modelPSC of 2008, the ceiling price of gasindexed to HSFO price at Singaporehas been fixed as US$ 180 per ton. Thegas price in this situation will be US$4.5/1,000scf.This is not attractive in thecontext of risks in offshore drilling.Moreover, companies will have to paycorporate tax, which in earlier PSCswere paid by Petrobangla on behalf ofthe company. Arbitration will be heldoutside Bangladesh according to inter-national norm. There is nothing wronghere. Generally, any dispute settlementunder investment contracts such aspetroleum agreements takes place inneutral venue of third state. It is now aproven reality that FDI is beneficial forthird world countries.

However, the government should pub-lish the recently signed PSC, showingfull respect to the popular demand. Allpetroleum contracts are published inBarrows Supplement published fromNew York. I do not consider this as aclassified document.

EP: You have achieved higher degreeon PSC. How do you compareBangladesh PSC and contract withthose of other countries?

AAF: Model PSCs are prepared in dif-ferent countries taking into considera-tion the geological conditions, existinglaws and resource potential of thecountry. Some general clauses are uni-versal in all PSCs. However, detailedprovisions may vary from country to

44

country depending on onshore or off-shore exploration, prospectively ofhydrocarbon and legal traditions. Inmy opinion, Bangladesh PSC has noth-ing harmful or detrimental to the inter-est of the country. But monitoring PSCis a huge challenge. Rate of return ofthe company in consideration of dis-counted cash flow must be carefullyexamined.

Our PSC has scope for renegotiationlike many other PSCs if IOCs makehuge profit. There is stabilizationclause in many PSCs. But our PSC doesnot have that. The inclusion of theclause means no such law can be for-mulated which may cause additionalfinancial obligation to the companyafter signing of contract. For example,tax stabilization may provide thatapplicable tax regime will not bechanged throughout the lifetime of thecontract. But in our PSC all changes intaxation and other matters will beapplicable to the company.

EP: A certain group is claiming that a

US company has been allowed toexport gas through the PSC. What isyour opinion about it?

AAF: It is an unreasonable claim. TheIOC has been selected through com-petitive open bidding. Petrobangla willbe in total control if gas is discovered.Petrobangla will retain exclusive con-trol even if gas is to be exported in theform of LNG. The people retains itsownership over resources, IOCs willnever assume the ownership.

EP: The government is working on for-mulating a model PSC for onshoreblocks. Some people are opposing it.What is your view?

AAF: All matters should be lookedinto from economic point of view. Anymodel PSC for onshore blocks shouldaccommodate for national company towork as a partner. Even some blocksmay be given to BAPEX exclusive forexploration without PSC. Before final-izing the model PSC, Petroleum Act1974 should be amended to createstronger obligations for companies to

address potential social and environ-mental negative impacts of petroleumoperations.

EP: How do you evaluatePetrobangla’s PSC negotiating andmonitoring capacity? WhatPetrobangla should do to enhance thecapacity?

AAF: Petrobangla has learned a lotthrough works. But for enhancing it,the government must take the initiativefor higher training for employees ofPetrobangla. Fresh and competent pro-fessionals must be inducted and theircapacity must be built through contin-ued training to fill the gap as and whennecessary. Petrobangla’s capacityshould be enhanced for monitoring ofenforcement of PSC. Negotiation andbargaining skills must also beenhanced. An efficient cell should beset up for legal and regulatory matters.If necessary, at every stage assistanceof specialists can be taken.

EP

45

The ABB solution is installed at theNational Institute of Water andAtmospheric Research (NIWA) in

Wellington, New Zealand, where itprotects the institute’s new climatemodeling supercomputer and the entireNIWA site from voltage fluctuations.

The new IBM supercomputer is themost powerful climate research com-puter in the southern hemisphere. Itcan perform 34 trillion calculations asecond (beingupgraded to 65 tril-lion/sec in 2011),and is designed toprovide fast andaccurate weatherand environmentalforecasting as well asearly warnings ofsevere hazards likeflooding and stormsurge.

Protection of the$9.5 million super-computer and itsinvaluable data fromdamage or destruc-tion is vital. Thecomputer is housedin a purpose-builtclean room that isdesigned to with-stand natural andmanmade disasters like severe earth-quakes, tsunamis and fire from within.

It is also protected from the equallydevastating effects of power surges andvoltage sags that have the potential toshut down the computing facility anddamage the highly sensitive equipment. This is provided by an ABBPCS100 AVC active voltage condition-er.

The PCS100 is an inverter-based system

that protects sensitive industrial andcommercial loads from voltage distur-bances. An ABB innovation, it providesfast, accurate voltage sag and surgecorrection as well as continuous volt-age regulation and load voltage com-pensation.

With a system efficiency approaching99 percent, the PCS100 offers signifi-cant energy savings compared to theconventional alternative of uninterrupt-

ible power supplies (UPS), the efficien-cy levels of which typically lie in themid-90s. This is especially importantfor energy-intensive supercomputerfacilities, which consume largeamounts of electricity and require con-stant cooling to dissipate the heat theygenerate.

Whereas UPS batteries are a powerstorage device that release energywhen needed, the PCS100 is continu-

ously online, monitoring the powernetwork and injecting an appropriatepower correction within 1-2 millisec-onds of sensing a deviation. This is fastenough to protect even the most sensi-tive environments like a supercomputeror wafer lab from a disturbance.

Storage batteries are also high mainte-nance and have a short operating life ofbetween 5-10 years. ABB active volt-age conditioners, on the other hand,

require virtually nomaintenance andhave a much lowertotal cost of owner-ship.

ABB AVCs are pro-tecting sensitivecommercial andindustrial applica-tions in a broadrange of applicationsworldwide, includ-ing semiconductorfactories and waferlabs, solar cell man-ufacturing facilities,food and beverageplants, and theprocess industries.

One of the mostrecent installations isat Weta Digital’sa w a r d - w i n n i n g

supercomputer center in New Zealand,where the AVC is not only protectingthe entire facility but significantlyreducing site energy consumption aswell. Weta Digital is a world-leadingvisual effects company whose recentsuccesses include the film Avatar,which won it the Academy Award forBest Visual Effects in 2010.

EP Desk; Source ABB

46

TECHNOLOGY

Protecting A Supercomputer FromPower Grid Disturbances

EP Desk

ABB activevoltage conditionershave uniquely high

levels of systemefficiency and a

footprint that is justa fraction ofconventional

solutions

Energy efficiency,

compact footprint

and efficient power

protection are key

factors in data

center design