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     Volume 4 Issue 54 | July 15, 2005 |

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Cover Story

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The Niko

Sharier Khan
Photographs: Shawkat Jamil

In 1997 when the government experts and officials were evaluating proposals of oil companies interested in exploring Bangladesh's oil and gas blocks, they could never imagine that one of the small companies with hardly any expertise or financial strength would one day 'dominate' the country's gas sector. This small company -- Niko Resources of Canada -- was rejected on both technical and financial grounds during the assessment.

The blowout caused the entire vicinity to be contaminated as it poisoned both water and soil.

Their evaluation couldn't have been more accurate. Eight years later, Niko is not only present in the Bangladeshi gas sector -- thanks to a section of corrupt policymakers -- but it has been repeatedly proving its incompetence through two rounds of devastating blowouts in the Tengratila gas field.

Niko moreover has shown its tenacity in holding on to its position. After its 1997 failure, it waged a strong lobby in the then Awami League government and found the strong support of no less than the energy secretary Dr. Towfik-e-Elahi himself. With Dr. Elahi's help, Niko soon devised a way to enter the country's gas sector bypassing any evaluation or competition. It designed a joint venture proposal with Bapex, the country's lone oil and gas exploration entity. Niko wanted access to three "marginal" or previously used and abandoned gas fields through the joint venture. However, it actually named three marginal fields and one unexplored gas field -- Chhatak east, where Tengratila is located.

Children living near the gas field are suffering from fever and breathing problems after inhaling the fumes from the blow out in Tengratila.

The proposal, the first of its kind in Bangladesh, was grossly flawed with all gains going to Niko. Amidst continuos resistance from experts of Petrobangla, newspaper reports and also some senior bureaucrats, the Sheikh Hasina government ultimately did not okay the Niko deal.

Soon after the change of the government, Niko knew where to hammer its deal. The BNP government appointed as the state minister for energy AKM Mosharraf Hossain, the man who had masterminded the Kafco (Karnaphuli Fertiliser Company) deal against the interest of the nation in the late eighties. The establishment of Kafco gave a Japanese company rights to suck millions of dollars out of the country. The deal gave Kafco unlimited access to the country's natural gas reserves at a nominal price regardless of the market rates. Hossain, in his tradition of upholding interest of foreign companies over national entities, again pushed for the Niko deal hard.

Niko also gained support from the 'alternative power house' of the government as soon as the 'power house' suddenly became ubiquitous in all project approvals in the country. These two sources ultimately pushed Bapex to sign the JVA (Joint Venture Agreement) with Niko in late 2003.

This was not all. Niko managed to strike a secret deal with US giants Chevron-Texaco for the purchase of block 9 shares for a symbolic nominal price in 2003. In this deal, Niko was shown to be registered in Bermuda with a capital of only 12000 USD. According to industry insiders, Niko had done this to dodge tax in Canada where it is head quartered.

In 2001 Chevron-Texaco, along with Tullow, an Irish company, signed a Production Sharing Contract (PSC) with Petrobangla for block 9 in central Bangladesh. Although Chevron-Texaco were very enthusiastic about this block from as early as 1997, it suddenly lost interest in Bangladesh and was looking for a way out. They were not on good terms with Irish partner Tullow from the very beginning and thus did not ask Tullow if it was interested in purchasing its 60 percent shares. Instead, it unilaterally sold the shares to Niko and left Bangladesh -- leaving the exploration and development of this block to an uncertain fate till now. A gas field has been discovered here, but for the last nine months, operations in this block remain suspended over a legal tangle.

Increase of pressure underground triggered flow of poisonous water from tubewells.

Now with block 9, three marginal and one unexplored gas fields in hand, once disqualified Niko holds more energy resources potentials than British company Cairn which pioneered oil and gas exploration in Bangladesh in the recent decades through a PSC.

Consequently, it was the government lobby spurred on by vested interest that made the Niko JVA happen, undermining national interest in a number of issues.

First of all, the three marginal gas fields -- Chhatak west, Feni and Kamta and the unexplored Chhatak west were assets of two government companies Sylhet Gas Field Limited (SGFL) and Bangladesh Gas Field Company Ltd (BGFCL). These two companies were not paid for giving up these fields to Bapex so that Niko could access them. Had SGFL and BGFCL been given enough funds, they could have developed the marginal fields themselves. Both these companies are profitable and contributing huge revenues to the government. Thus providing them with funds would have been the most logical step.

But now, Niko only has to pay the SGFL and BGFCL for the infrastructure they built in the past in these fields.

Disaster scenario: The blowout caused the nearby structures to collapse.

In October 2004 Niko developed the Feni marginal gas field. Although this field is small with a reserve of 150 billion cubic feet of gas, it is worth about 250 million to 300 million US dollars.

Under the JVA, Bapex will get 40 percent equity "without any investment". This phrase is misleading, since Bapex owns these gas fields worth billions of dollars. And 40 percent equity for Bapex is clearly unfair since the PSCs between Petrobangla and other oil companies give Petrobangla up to 77.5 percent share. This issue is crucial in deciding the real price of gas being produced under the PSCs or the JVA.

Niko, for instance, is insisting on a fixed gas tariff of 2.35 USD per thousand cubic feet (or a unit) on the grounds that gas produced under the PSCs from Sangu and Jalalabad is priced at 2.9 USD maximum, with a minimum being 1.4 USD. On the other hand, Petrobangla initially said Niko-Bapex's gas should not cost more than 1.4 USD per unit, and then increased that offer to 1.7 USD. The reason is that while gas produced under the PSCs can, at times, go down to 1.4 USD if the international petroleum price is low -- the share of free gas under the PSCs actually put the net payable price for Sangu or Jalalabad gas to a reasonable level. The costly off-shore Sangu gas practically costs Petrobangla 1.4 USD per unit while the Jalalabad gas costs only 98 cents. In contrast, even with 40 percent free gas for Bapex, Niko's gas would practically cost around 1.43 USD per unit. But Niko's gas should cost less than Jalalabad gas.

Gas kept bubbling out from the floors of nearby haors after many days of the second blowout on June 24.

This is why, Petrobangla did not sign any gas purchase sales agreement for Feni's gas with Niko despite pressure from the minister. However Mosharraf once again demonstrated whose interest he looks after by pushing Petrobangla to start buying gas from the Feni field from October last year, without fixing any price or agreement.

Thus Niko started supplying up to 40 million cubic feet per day (mcfd) of gas.

In March this year, three months after the first Tengratila blowout, Niko started blackmailing Petrobangla saying that if it is not paid for the gas, it will suspend the Feni gas supplies. Once again, Mosharraf came in aid of Niko and asked Petrobangla to make a payment.

Petrobangla paid four million USD to Niko in two installments in April, illegally, still without fixing any gas price.

The blaze at Tengratilla gas field has spelt out a death sentence for the surrounding forest.

Again, this payment went entirely into Niko's bank account, although the JVA dictates that all payments will be made in the joint account of Niko-Bapex.

On the other hand, even the few benefits for Bapex as spelt out in the JVA did not materialise. For instance, the JVA is supposed to transfer technology to Bapex, but so far there has been no noticeable technology transfer.

Niko is supposed to provide a five-year scholarship for a Bapex technical staff member each year to qualify him to become a Petroleum Engineer through studies in Canada. No such move has been taken.

The Bapex members were supposed to be technically prepared by Niko for supervision of drilling. But no progress took place.

Niko did take a couple of Bapex officials to Canada for study on marginal gas fields prior to the signing of the JVA. After the signing, however, the only people who visited Canada were some bureaucrats and the state minister.

Under the draft JVA it was proposed that in case the joint venture finds gas in the Chhatak gas field, Niko-Bapex would have to submit a development proposal which would then be placed for a 'Swiss challenge' seeking bids from other oil companies matching that proposal. This would have lowered the investment cost and ensured some sort of competition. But eventually the proposal was dropped.

Instead, Niko has now been given a total risk-free deal for Chhatak east. The JVA says that after exploration if it finds no gas in Chhatak east, Niko will get the cost returned from gas sales of Chhatak west and vice versa.

In contrast, companies like Unocal and Cairn (which spent several hundred millions of dollars for oil and gas exploration and development), have had to swallow huge losses for not finding gas in a number of exploration wells.

The JVA does not outline any monitoring role of Petrobangla or even the government. This means Niko does not need to gain the approval of its work plans or budgets by Petrobangla. All it needs is to place these vital matters in a joint committee of Bapex and Niko for approval. But Bapex neither has the technical nor the financial expertise to reject Niko's plan, while Petrobangla has gained a lot of expertise by implementing the PSCs since the nineties. This makes Niko practically unaccountable.

"The JVA makes Niko an undeservingly eternal winner," quips a Petrobangla source.

People in Sylhet protest the Tengratila blow out that has left thousands homeless.

The Tengratila blowouts
The government's unusual soft corner for Niko was evident in the aftermath of the two blowouts in the Tengratila gas field. In both cases, the government punished some Bapex officials, although they had no role in the operation in the exploration.

The first blowout took place in January 8, when Niko's drilling contractor reached a depth of nearly 800 metres. Niko had planned an investment of 15 million dollars for this well.

Niko's Operation Manager Peter Mercier explained, "We had a target of drilling 1700 metres. The disaster occurred after drilling about 800 metres Friday night. We had tried to avert the accident by firing a flare line within an hour of the abnormal behaviour of the well." After they fired the flare line, it led to the gas field blowout.

The blowout left thousands of people homeless while the area experienced tremors a few days afterward indicating that there was immense pressure underneath the surface. Poisonous gas emissions have driven people out from nearby villages for weeks -- forcing them to live like destitutes in safe areas.

Luckily the inferno at the gas field lasted only a few days, for Niko did not have any expertise to put the fire down in a short time.

A government investigation committee report on gas loss that was never made public says that the country lost over 10 billion cubic feet (bcf) of gas worth 20 million USD in that blowout.

Another investigation committee on environmental damage reported in April that the first blowout has caused an environmental damage worth Tk 35 crore or about 6 million USD. But the government neither released this report to the public, nor claimed any compensation from Niko.

The company collected its 20 million dollar insurance, renewed the insurance and hired people to drill a relief well after a long delay of four-five months. Meanwhile Niko spent a couple of crore taka as compensation for displacement of people not for gas or environmental loss. It spent another crore taka to give a Toyota Land cruiser to State Minister AKM Mosharraf Hossain as a gift. According to sources in the prime minister's office, the prime minister had already planned to replace Mosharraf with Board of Investment chief Mahmudur Rahman. The Niko car scam provided a perfect pretext to oust him. No action or warning was given to Niko -- the 'gift' giver.

When the first blowout was almost forgotten, Niko once again hit the headlines with the second blowout of a similar nature on June 24. This blowout ultimately merged the relief well and the original blown-out well.

Once again Energy ministry adviser Mahmudur Rahman formed two committees. None of these committees have any drilling engineer. Instead these committees are dominated by chemical engineers including the energy adviser himself.

Following the footsteps of Mosharraf, Rahman punished two Bapex officials for the blowout and reprimanded Petrobangla for "not monitoring" Niko's activities although the Niko JVA gives no room for Petrobangla to monitor it.

Rahman repeatedly told the press, "getting compensation from Niko will be very easy. We can collect compensation by blocking payment for the Feni gas field."

While he sounded more coercive than authoritative on this issue, Rahman defended Niko saying that it has started paying compensation.

Meanwhile the second blowout triggered widespread protests from local people of Chhatak to political parties including the Awami League. They have started demanding cancellation of the contract with Niko.

Geologists, energy experts and intellectuals have blamed the government for bringing in Niko through a decision that benefited a vested interest lobby inside the government.

Rahman rules out cancellation of the Niko deal saying, "if we cancel the deal, who will drill the relief well?" He urged the political parties not to make the Tengratila issue a political issue.

Niko has laid out a plan to start the second relief well operation from July 25 and has mobilised a rig to the area.

"If all goes well with its plan, soon everything will be silent. Niko knows how to make the policymakers happy and keep its deal going. We have seen it before, we will see it once again," remarks an industry insider.

Why repeated blowouts
Geologist Badrul Imam says, "I have never heard of repeated blowouts in the same gas field. This has happened because of total incompetence of Niko Resources."

According to industry insiders, being small is not a merit for an oil company which has to pump in a lot of cash and technical resources. In western countries, small companies are either scouts for bigger oil companies or fortune hunters or sub-contractors.

"The biggest example of the demerit of a small company is the way Niko Resources functions," says a member of one of the government's two investigation committees on the second Tengratila blowout.

"Niko's core manpower is very small. To operate in different gas fields in Bangladesh, it has hired different companies and different people from different countries. These people neither have any sense of belonging, nor any understanding amongst themselves," he adds.

"For instance, the design for the relief well following the first blowout was not really bad. Niko hired a reputed company to do the job. But then again, it hired a lot of people from different places to do different types of jobs." Imam explains that the person doing a particular job will never give his opinion to the main supervisor about any flaw in the system. This is a dysfunctional operation," the committee member notes.

"If this is how Niko keeps on operating, accidents like Tengratila blowout are inevitable," he pointed out.

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