The cabinet has approved the revised model Production Sharing Contract (PSC) on September 3.
To explore oil and gas in the deep sea areas of the Bay of Bengal, Petrobangla at first invited tenders in December last year.
Until April this year, bidding response was poor. Only two companies submitted bids separately.
However, in a call for re-tender from April to July this year, Bangladesh also received a poor response; only one international company submitted a bid for a single shallow water block on the closing day of submission.
IOCs stipulated for increasing the gas price, giving tax incentives (tax holiday for 5 years), banning export options to third parties etc during a pre-bidding meeting with high officials of the government of Bangladesh, but Petrobangla didn’t respond because of secrecy. Ultimately bidding didn’t serve the purpose.
To ensure more participation in the next tender, the government has already updated the model PSC and discarded some previous provisions.
The civil society has criticised the elimination of provisions; they said it went against the interest of the country.
In the first amendment, 2008, high sulphur fuel oil (HSFO) rate was settled at $180 per tonne, on-shore 75%, shallow and western 93%, deep-shore 100% and cost of gas was $4.5 per 1,000 cubic foot.
However, a re-amendment in 2002, considered HSFO rate at $200 per tonne, onshore, shallow and western shore was similar to 2008 but deep shore rose up to 110% and cost, per thousand cubic foot gas, rose up-to $5.
In 2012, in the 3rd amendment, HSFO rate has been fixed at $200 per tonne, onshore 75%, western 93%, shallow offshore 100%, and deep offshore 130%, gas price has also been increased to $6.5 per 1000 cubic foot.
In the first two amendments, there was no provision for increasing the annual gas price, but the latest amendment allows IOCs to increase the annual price at 2% per thousand unit of gas.
Legally, a contracting company is now awarded for increasing 2% annual gas price after starting production.
The past amendments had no exemption facility on corporate taxes but recent alterations allow exemption on corporate tax.
Petrobangla, in the past amendments, did not allow the gas to be sold to third parties. But this option has been wiped out recently; a contracting company is now entitled to sell 50% of its share to third parties in the country without hindrance.
In the yesteryear’s, a contracting company was given at best 50% cost recovery per year which now has risen up-to 70%.
Added to that, the contracting company will not have to pay wheeling charge for gas, from offshore to onshore, through the pipeline to be constructed under the cost recovery arrangement.
Through recent changes in the PSC, the government hopes that potential IOCs would be interested to take part the next bidding. From whom, experienced and capable companies can easily be sorted out, as well as have a more pragmatic comparison with the neighbouring country.
A few have asked that Bapex strengthens itself to take part in the offshore exploration. Bapex is not capable enough due to overall shortage of expertise, experience, funds, and heavy rigs compatible for working in deep sea areas. $25m, for instance, would be necessary to do a single onshore well, whereas this amount would be four times higher ($100m) in the deep-sea areas.
Now, the PSC looks pretty good. The writer hopes it would be able to grab potential IOCs this time.