Tengratila Blowouts: Niko liable, must pay damages

Canadian company Niko Resources was negligent and thus liable for the blowout that took place at Chhatak gas field in Tengratila of Sunamganj in January 2005 while Niko's Bangladeshi subsidiary was carrying out drilling operations there, a World Bank tribunal found.

The tribunal formed under the Convention on the International Centre for Settlement of Investment Disputes (ICSID) also concluded that Niko must compensate Bapex for direct loss and damage caused by the blowout.

The compensation owed by Niko to Bapex includes the gas that escaped from Chhatak 2 Well. Niko must also pay compensation for direct damages to environment and health of the people in the surrounding area.

The quantum of such compensation is to be determined at the next phase of the pending arbitration case.

Bangladesh, on the basis of reports from international experts, filed a claim for damages before ICSID in March 2016 seeking $118 million for Bapex and $896 million for Petrobangla and Bangladesh as compensation for the 2005 blowouts. 

Although the tribunal gave the verdict on February 28, Nasrul Hamid Bipu, state minister for power, energy and mineral resources, disclosed it through a video conference with journalists yesterday.

The ministry had a plan to disclose the verdict in early March but the coronavirus outbreak delayed it, ministry sources said.

"After ten years of complex and prolonged proceedings, the tribunal has now concluded that the blowout was caused by Niko's breaches of its obligations as an operator under the Joint Venture Agreement (JVA) between Niko and Bapex," the ministry said citing the verdict.

"The tribunal found that Niko was liable because of its failure to conduct operations diligently and in conformity with the standards of the international petroleum industry," it mentioned in a press statement.

The ICSID's verdict came more than two years after the High Court in August 2017 declared illegal and void the two deals Niko Resources Bangladesh Limited, a subsidiary of Canadian explorer, had signed with Bapex and Petrobangla, as those were procured through corruption.

The HC also directed the authorities to "revert back" to the state the assets Niko possessed through the Joint Venture Agreement (JVA) and the Gas Purchase and Sales Agreement (GPSA) signed in 2003 and 2006.

Several other cases now pending with national courts regarding the granting of the gas fields to Niko.

NIKO AND ICSID'S VERDICT

It all goes back to 1997, when Niko entered Bangladesh during the second round Production Sharing Contract bidding for oil and gas exploration. But with just 10 years' experience in the field, the firm failed to qualify in the bid both on technical and financial grounds.

But it continued lobbying. In 1998, it submitted an unsolicited proposal for developing the Chhatak and Feni gas fields.

However, Bapex refused to sign the deal as it found that Chhatak was an unexplored field, and not used one as Niko falsely claimed, according to case documents obtained by this newspaper.

Niko, however, managed to sign a Joint Venture Agreement with Bapex in October 2003 to develop two gas fields, which the High Court later said "were procured through corruption".

The Daily Star on April 7, 2017 ran an investigative report revealing how the Canadian explorer left behind a hard-to-miss corruption trail, won an unsolicited energy deal and dodged responsibility for the subsequent blowouts by bribing influential people linked with the last BNP-led government.

BNP Chairperson Khaleda Zia and former BNP ministers Moudud Ahmed and AKM Mosharraf Hossain are accused in one of the pending criminal cases. They, however, refuted the allegations.

The first blowout at the Chhatak field in Tengratial took place in 2005, just a few days after Niko started drilling.

The government-formed probe committee blamed "faulty and negligent operations of Niko for the disaster".

But Niko was quick to act. On May 23, 2005, it presented Mosharraf with a Lexus SUV and reports of this bribery scheme led to his resignation on June 18. Mosharraf, however, refuted the allegation.

Meanwhile, as Niko was drilling a relief well to contain the fire from the first blowout, another blowout occurred at the same field on June 24.

The gas field burned for years, causing a loss of tens of crores taka for Bangladesh. It also caused damages of environment and surrounding areas. 

In November 2009, the HC, following a separate law suit, prevented government from making payments to Niko until it pays the compensation for the blowouts.

In 2010, Niko Resources Bangladesh Ltd files two cases with ICSID -- one seeking an order clearing it from the liability for the two blowouts in Tengratila and the other demanding outstanding payments for the gas it supplied from the Feni gas field to Petrobangla.

In June 2011, Niko Canada pleaded guilty before a Canadian court to bribing Mosharraf Hossain with a luxury SUV and a trip to New York and Calgary mainly for damage control following the blowouts. The company also agreed to pay $9.5 million in fine, which went to the Canadian government fund, according to the documents obtained by The Daily Star.

After around 10-year-long legal battle and hearings in London and Paris, the WB tribunal gave the verdict in February this year.

The tribunal will now conduct further proceedings to determine the amount of compensation Niko must pay, said Barrister Moin Ghani, who along with US-based law firm Foley Hoag LLP represented Bangladesh side.

"This decision has finally ended Niko's 10-year-long effort to have an international tribunal declare that it was not liable for the blowout caused in 2005," Barrister Ghani told The Daily Star.

More importantly, in Bangladesh's 40 years of independence this is only our second victory for Bangladesh before the ICSID, he added. 

"The case thus sends a clear message to international investors that Bangladesh can now put up a fight to assert her rights before international tribunals. Investors cannot just expect to get a walk over any longer."

Asked whether Niko can appeal against the decision, Moin Ghani said: "There is no appeal from this decision or the final award to be issued after the next phase of the case. But Niko can seek annulment of the final award from ICSID on very limited grounds."

Barrister Rokanuddin Mahmud represented Niko before ICSID. The Daily Star could not contact him last night for comments.

COMPENSATION FOR OTHER LOSSES

State Minister Nasrul Hamid said apart from the direct loss, Bangladesh will realise compensation from Niko for the loss the country incurred for rehabilitation of people from the affected area and health, land and environment related losses.

He said the country faced huge losses as the then BNP-Jamaat alliance government, with an ill motive, had engaged an incompetent company like Niko to extract valuable natural gas.

Although Chhatak gas field was a virgin one, the then government even tried to label it as used one, he said.

But the hard-work of the incumbent government has proved at ICSID that Niko was responsible for blowouts, the state minister added.