Bangladesh to receive $42mn in compensation from Niko over 2005 gas field blowouts

An international tribunal has ordered Canadian oil and gas firm Niko Resources to pay $42 million in compensation to state-run Petrobangla over two gas field blowouts in Chhatak, Sunamganj, in 2005.

The confirmation about the order given by the US-based International Centre for Settlement of Investment Disputes (ICSID) came from Petrobangla Chairman Md Rezanur Rahman on Thursday.

“Niko has been ordered to pay $42 million in compensation,” said Rezanur.

Bangladesh will decide its next course of action after receiving the full copy of the verdict, he said.

Though the verdict came on Dec 18, Rezanur said Petrobangla came to know of the outcome on Wednesday.

Along with $42 million for losses in the blowout of 8 billion cubic feet of gas, the tribunal ordered Niko to pay $20 million in environmental compensation.

The order determining the amount of damages Niko owes Bangladesh comes six years after the tribunal found the company responsible for the blowouts.

In February 2020, the Tribunal ordered the compensation, asking for the loss and damages to be determined.

Bangladesh had claimed $1 billion in compensation. Gas blowout compensations are determined under two categories: loss of gas resources and environmental damage.

Bangladesh appointed the US-based law firm Foley Hoag LLP to determine the loss and damage from the blowouts.

Bangladesh had first filed its compensation claim with ICSID in March 2016. The claim demanded $11.8 million compensation for Bangladesh Petroleum Exploration & Production Company Limited (BAPEX) and $89.6 million for Petrobangla.

Besides gas and environmental losses, the claim focused on costs from Bangladesh having to buy gas from alternative sources after the blowouts.

In 2003, Niko signed a joint venture agreement with BAPEX to develop gas fields in Feni and Chhatak.

Petrobangla subsequently agreed to buy the gas extracted from the Feni field under a gas purchase and sales agreement.

However, a drilling well at Chhatak's Tengratila gas field exploded in January 2005 and was followed by another blowout at the same place later in June, resulting in extensive damage to the gas well, human lives, and the environment.

A government probe into the blowouts found fault in Niko's drilling procedure, prompting Petrobangla to sue the company for damages in a Bangladeshi court.

The state-run energy corporation subsequently stopped paying for the gas supplied from Feni in 2009 after the High Court put a freeze on all payments to Niko until the compensation claim was resolved.

But Niko instead pursued arbitration proceedings by filing two cases with the Washington-based ICSID, requesting a declaration absolving it of liability for the two blowouts and demanding payment for the gas it had supplied to Petrobangla from the Feni gas field.

Niko's claim against liability for the explosions was later dismissed by the tribunal in 2013.

The following year, the arbitral tribunal also stayed its second case until the matter of compensation for the Tengratila blowouts was resolved.

Reports in the media at the time also indicated an attempted cover-up of the blowouts by the BNP-Jamaat-e-Islam coalition government at the time.

Niko had reportedly given an SUV to the then state minister for power AKM Mosharraf Hossain as a kickback.

A Niko official later confessed to the bribery and was fined 9.5 million Canadian dollars by a Canadian court.

In its first verdict, the ICSID ruled in favour of Bangladesh, noting that Niko violated the terms of its agreement with Petrobangla by failing to comply with international standards in carrying out its work in the gas fields.

Niko’s bankruptcy casts doubt on the recovery of the compensation.