Chevron's controversial partnership proposal

As fund crisis keeps the government indecisive about installing three gas compressors to boost pressure and quantity, American oil giant Chevron reiterates a proposal to install a compressor station in the national grid in Muchai owned by Titas Gas Transmission Company Ltd (GTCL).
The operator of Bibiyana, Moulvibazar and Jalalabad that supplies 45 percent of the country's total gas production has suggested forging a partnership with GTCL.
Chevron's partnership proposal suggests that finance for this compressor station will come under the Production Sharing Contract (PSC), to be approved by the Joint Management Committee (JMC) with Petrobangla.
This means that the financing will be "cost recoverable". Chevron will recover the cost from gas sales from Bibiyana gas field under PSC for block 12.
But the PSCs with Chevron do not allow it to take part in the national gas distribution system, or partnership with GTCL, Petrobangla sources say.
"Besides, it will unduly give Chevron the authority to control major chunk of the country's gas distribution system. This will definitely create a number of serious legal complications over the authority and ownership of the compressor station and the distribution pipeline," observes an official.
"Chevron has no business with the GTCL's project or any project of the national companies," the official says.
On the other hand, a Chevron official said installing a compressor in partnership with GTCL in Muchai falls within Chevron's PSC area.
"Chevron Bangladesh has been operating our existing gas fields in full compliance with the PSC it signed with Petrobangla and the government. The Muchai compression project is one of the key enablers covered under the PSC to expand the country's total gas production which will benefit the country as a whole and the industry," he added.
"Certain provisions in the PSC allow Petrobangla to collaborate with Chevron Bangladesh on capital projects like the Muchai compression project. The Joint Management Committee comprised of Petrobangla and Chevron Bangladesh officials has the jurisdiction to recommend items like the compression project, which is ultimately subject to the approval of the government of Bangladesh," he pointed out.
The Chevron official clarified that the compression project in Muchai is no different from the Bibiyana gas plant in that it is cost-recoverable and belongs to the people of Bangladesh.
"The operation of the compressor station will be within the purview of Petrobangla and no unilateral decision on the same will be made by Chevron Bangladesh, which, under the PSC, is a contractor to Petrobangla," he argued.
However, a Petrobangla official contradicted this argument. "If it is under the PSC, then why seek partnership with the GTCL," he said.
The Chevron proposal is also a contrast to the British company Cairn's scheme to install compressors in the Sangu gas field's onshore terminal to boost and stabilise the declining gas production of the off-shore Sangu field.
With a budget of $6 million, Cairn's compressor is however cheaper as it deals only with this field.
But sources say Chevron has been pushed to submit this proposal by a Petrobangla high official against the opinion of other officials.
This idea was first tabled at a Technical Financial Committee under a PSC for Chevron and that committee rejected the idea for being outside the purview of the PSC. Later, the Joint Management Committee (JMC) for the PSC headed by a Petrobangla director accepted it.
The GTCL is pursuing a re-tender to install gas compressors with a budget of $55 million funded by the Asian Development Bank (ADB).
The tender drew a lowest offer of $150 million from Korean company Hyundai in mid-February. Ever since, the government is trying to fine-tune the project to channelise more funds for the compressors and avoid further re-tendering.
On February 26, Chevron in a proposal to the authorities said it would install the compressor in Muchai, but the government must give a go-ahead within March 14. Otherwise, the fund earmarked for this project would be diverted to some other schemes.
Though the authorities did not respond positively, Chevron "extended" its deadline and started perusing it again.
Earlier this week, Chevron made a presentation to the GTCL for partnership.
Chevron's proposal outlines a cost of around $52 million. The price is a sharp contrast against Hyundai's offer of $40 million for the same in Muchai under the GTCL bid.
Again, by installing the compressor in Muchai, Chevron along with GTCL gets to control gas production of Petrobangla fields along with its Jalalabad, Bibiyana and Moulvibazar fields.
The Petrobangla fields include Sylhet, Bianibazar, Fenchuganj, Habiganj and Kailastila.
"If Chevron must be allowed to install compressors, it should be limited within its own gas fields. Otherwise, this will create yet another controversy in the energy sector," notes a Petrobangla official.
"Installing the compressor in the national transmission grid is the job of the government. If the government is facing fund crisis now, it can solve it if it has the political will," he adds.
Chevron's worldwide gas compressor supplier is international company Solar Turbines, the same company that has been blacklisted for good for the GTCL's compressor project by the ADB.
The ADB did so because when the GTCL organised the first tender for three compressors in April 2006, it was then alleged that some GTCL officials in connivance with a bidder Punj Lloyd and Solar were manipulating the tender.
The ADB investigated the allegation and blacklisted Solar from this project life-long and from other ADB funded projects worldwide for two years.
Chevron's predecessor Unocal had created the gas export and Western Region Integrate Project (WRIP) controversies in the same way, he informs.
The Niko-Bapex joint venture deal is another reminder that overlooking legal bindings can land any agreement into serious controversy.
Installing gas compressors and new gas pipelines has become urgent for the nation to expand gas supply availability at a proper pressure.
Due to non-availability and low pressure of gas, different power plants across the country are already failing to produce 550-700 mw power every day.