CHEVRON'S INTERNATIONAL ARBITRATION

C O N F I D E N T I A L DHAKA 001265

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO SCA PDAS STEVE R. MANN

E.O. 12958: DECL: 08/06/2017
TAGS: EINV ECON ETRD EPET PREL KTIA BG
SUBJECT: CHEVRON'S INTERNATIONAL ARBITRATION

REF: JULY 30 O/I ITEM

Classified By: CDA a.i. GEETA PASI FOR REASONS 1.4(b) & (d)


1. (C) SUMMARY. Chevron Bangladesh filed for international
arbitration of a dispute with Petrobangla pursuant to their
contracts and treaties signed by Bangladesh. In response,
Petrobangla filed a local case in Bangladesh seeking to stay
that arbitration and recently received a court order granting
a stay. Chevron briefed the CDA a.i. and emboffs on July 30,
2007, requesting no specific action beyond raising concerns
about the impact of this issue on foreign investment, which
has been covered by the local media. END SUMMARY.


2. (U) THE UNDERLYING DISPUTE. Chevron Bangladesh (a
Bermuda-registered, wholly-owned subsidiary of Chevron, a
U.S. corporation) and Petrobangla (a GOB entity responsible
for oil and gas) entered into two Production Sharing
Contracts (PSCs) on January 11, 1995 and three Gas Purchase
and Sales Agreements (GPSAs) as follows: Jalalabad GPSA in
November 1996, Moulvi Bazar GSPA in October 2003 and Bibiyana
GPSA in November 2004. The original contracts provided for
Chevron to use Petrobangla's pipelines when selling to other
purchasers in return for a 4% tariff. In April 1999,
however, Petrobangla began charging the 4% tariff (deducted
from monthly payments to Chevron) on gas sold to Petrobangla
transmitted through Petrobangla's pipelines. Chevron argues
that the contracts transfer ownership of the gas to
Petrobangla before the gas enters Petrobangla's pipelines,
and therefore Chevron is not responsible for a tariff after
that transfer.


3. (U) DISPUTE RESOLUTION. Chevron instituted case number
ARB/06/10 with the International Centre for Settlement of
Investment Disputes (ICSID) in January 2006 to resolve the
dispute through international arbitration. Bangladesh, the
U.S., and Bermuda are all signatories to the convention which
created ICSID. Petrobangla filed a case in April 2007,
"Title Suit No 140 of 2007," with a Bangladesh court which
included a prayer to stay the arbitration. The ICSID
tribunal communicated directly with the Bangladesh court
informing it that ICSID had exclusive jurisdiction over the
dispute; the Bangladesh court however ordered that the
arbitration be stayed on July 22, 2007. This stay, as an
interlocutory order, is subject to appellate review when a
certified order is produced; currently there is only a verbal
order, pronounced by the judge from the bench.


4. (C) BRIEFING BY CHEVRON. CDA a.i. and emboffs met with
Chevron Bangladesh's President Steve Wilson, Director of
Government Relations Ismail Chowdhury, and Legal Director
Chye Koh on July 30, 2007. Chevron's representatives
emphasized that Chevron is not seeking assistance with the
merits of the case, only with ensuring proper process is
followed in getting the case before ICSID. Wilson said he
met recently with Bangladesh's Energy Secretary and
Petrobangla's president, both of whom want to get out of the
current situation which they attribute to an overzealous
Petrobangla attorney. Neither the Energy Secretary nor
Petrobangla's president, however, feel they can take the risk
in the current anti-corruption environment of dismissing the
local lawsuit that is holding up international arbitration,
for fear it would appear they have been paid off by Chevron.
Chevron will appeal the stay when a certified order is
received.


5. (C) NEXT STEPS. CDA a.i. cited the Chevron - Petrobangla
dispute in a well-publicized speech to the American Chamber
of Commerce July 31 as an example of negative signals to
foreign investors. Embassy will continue to express concern
about the overall negative treatment of treaty obligations
and foreign investors in public and private venues.
PASI