Petrobangla scraps deal for non-compliance with terms

State-owned Petrobangla has cancelled the contract of Summit Group to build its second floating storage and re-gasification unit (FSRU) due to non compliance of the contract terms, Petrobangla Chairman Zanendra Nath Sarker told the FE on Tuesday.

"We sent the termination letter Monday afternoon and requested the Summit LNG II Terminal Co. Ltd to collect performance bond from Petrobangla office during office hours at the latter's convenience," he said.

He added that the Terminal Use Agreement (TUA) and Implementation Agreement (IA) with Summit Group have been cancelled in line with an instruction from the Energy and Mineral Resources Division (EMRD) under the Ministry of Power, Energy and Mineral Resources (MPEMR).

Summit LNG II Terminal Co. Ltd, a subsidiary of the country's leading privately-owned business conglomerate in the energy sector, was supposed to build a FSRU with a capacity of 4.50 million tonne per year (MTPA) on build, own, operate and transfer (BOOT) basis by 2026 and continue operations for 15 years.

This is for the first time Bangladesh scrapped a FSRU deal with a contractor after inking a deal.

The contract cancellation letter, signed by Petrobangla secretary Ruchira Islam, says Bangladesh Oil, Gas and Mineral Corporation, mostly known as Petrobangla, has cancelled the TUA in accordance with Clause 27.1 (a) (i) of the signed contract due to non-compliance and non-satisfaction of the key Conditions Precedent which resulted in non-effectiveness of the signed TUA and IA.

The letter also pointed out non-compliance and non-satisfaction of one of the key Conditions Precedent - Performance Bond for cancellation of the deals.

The TUA between Petrobangla and Summit LNG Terminal II Co. Ltd. and the IA between Energy and Mineral Resources Division and Summit LNG Terminal II Co Ltd were signed on March 30, 2024.

Referring to violation of the conditions precedent, a senior EMRD official said, as per the terms of the deals Summit was supposed to deposit a performance guarantee worth US$20 million within 90 days of inking deals, meaning by June 28 this year.

But Summit deposited the guarantee money on June 30, two days after the deadline, he said.

A four-member committee - one purchase expert, one deputy attorney general, one planning commission representative and one RPGCL representative - recommended scrapping the deal last week, based on which the EMRD instructed Petrobangla to cancel the deal.

The EMRD had constituted the committee on September 11 to advise the MPEMR about the next course of action regarding the FSRU - Summit LNG Terminal II Co. Ltd. - which was inked under the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010 (Amended 2021) bypassing competitive tender, the official said.

Before the recommendation, he added, the committee took copies of the agreements, scrutinised the process of selecting Summit for the new FSRU project, checked whether any other companies were interested to bag the project, the circumstance and approval process and pricing.

Summit LNG Terminal II Co. Ltd. inked deals to build a 170,000-cu m FSRU with 600 million cubic feet per day (mmcfd) send-out capacity, which was supposed to be Bangladesh's 3rd FSRU, a senior Petrobangla official said.

Summit carried out a met-ocean survey over its second LNG FSRU and submitted a report to the state-run Rupantarita Prakritik Gas Company Ltd (RPGCL), he said.

When contacted, Summit Group confirmed that it has received the termination letter from Petrobangla on Monday evening.

"This evening (Monday) we have received a termination notice of the FSRU TUA. We believe this is unjustified and we will appeal for a review," said Summit Group in a statement sent by its PR and Media Head Mohsena Hasan issued on Monday.

"Summit Group has a proven track record of developing long-term infrastructure projects in Bangladesh in a responsible and transparent manner. We can confirm that Summit executed the TUA and IA for its second FSRU project with Petrobangla and the government of Bangladesh on March 30, 2024 and executed the Sale and Purchase Agreement, or SPA, with Petrobangla on the same date for the supply of 1.5 MTPA LNG for a 15-year period, starting in October 2026," it stated.

Summit Group's existing 3.75 MTPA FSRU - Summit LNG Terminal Co Ltd - located on Moheshkhali island in the Bay of Bengal, started commercial operation on April 30, 2019, and remained operational for 15 years until 2033 as per the existing contracts.

A senior official of the MPEMR said that a number of projects inked under the special law over the past 14 years are also at risk of cancellation or contract reviews.

After taking office, the new adviser for power and energy, and road transport and bridges Muhammad Fouzul Kabir Khan of the interim government halted all negotiations, selections, and purchasing processes of all power-and energy projects.

All activities of the already inked deals under the special law, known as 'controversial law' in the power-and-energy sector will, however, be continued as per the instruction of the energy adviser.

The interim government has already started reviewing terms and conditions of the deals already inked under the special law, said the official.

The council of advisers will make decision further on execution of the projects under the law, he added.

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