ACTION REQUEST IN CHEVRON / PETROBANGLA ARBITRATION

C O N F I D E N T I A L SECTION 01 OF 02 DHAKA 001349

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO SCA PDAS STEVE R. MANN AND L
KARIN KIZER

E.O. 12958: DECL: 08/16/2017
TAGS: EINV ECON ETRD EPET PREL KTIA BG
SUBJECT: ACTION REQUEST IN CHEVRON / PETROBANGLA ARBITRATION

REF: A. DHAKA 1265


B. AUGUST 15 O/I ITEM

Classified By: CDA a.i. Geeta Pasi for reasons 1.4(b) and (d).


1. (U) This is an action request. Please see paragraphs 8
and 9.


2. SUMMARY. (C) Petrobangla finds itself between a rock and
a hard place with respect to its upcoming arbitration hearing
with the International Centre for Settlement of Investment
Disputes (ICSID) scheduled for August 20 in Washington D.C.
On one hand, the Bangladesh court has ordered a stay of the
arbitration, reinforced by two letters from Petrobangla's
attorney threatening sanctions against Chevron and ICSID if
the arbitration proceeds. On the other hand, Chevron risks
prejudicing its own case before the ICSID tribunal if it does
not appear, since the tribunal has determined that it has
exclusive jurisdiction and specifically disregarded the
Bangladesh court's stay order. Petrobangla's attorney spoke
with Econoff to press his view of the case, and Chevron
supplied requested documents. Post concurs with EB's
suggestion to send a letter expressing concern with GOB
efforts to halt the ICSID arbitration. END SUMMARY.

PETROBANGLA'S ATTORNEY IS HEARD FROM
====================================


3. (C) Econoff met Md. Azharul Haque, attorney for
Petrobangla in the dispute with Chevron Bangladesh at an
Embassy function. Barrister Haque approached Econoff to
discuss the Chevron dispute. Barrister Haque made two main
points. First, he claimed that a previous arbitration had
been held in Bangladesh that ruled in favor of Petrobangla
and that Petrobangla is merely seeking to have that arbitral
decision affirmed through the Bangladesh courts. Second, he
suggested that a settlement should be reached to amicably
resolve the dispute.


4. (C) Barrister Haque confirmed that he is also one of the
approximately 18 attorneys on the Anti-Corruption
Commission's (ACC) advisory panel. The advisory panel is
distinct from the commission's prosecutors; its members act
as legal and business consultants to the investigators and
prosecutors of the ACC. Chevron's president had voiced his
concern that Petrobangla's attorney held this position during
Chevron's meeting with CDA a.i. (reported ref A),and that
this position has a negative impact on the willingness of
Petrobangla and Energy Ministry officers to oppose his
opinions.

CHEVRON SUPPLIES DOCUMENTS AND COMMENTS
=======================================


5. (C) Chevron's Director of Government Relations Ismail
Chowdhury met with Econoffs August 14 to supply requested
documents that provide the exact language referring disputes
to ICSID arbitration in both the Production Sharing contract
(PSC) between Chevron and the GOB and the Gas Purchase and
Sales Agreement (GPSA) between Chevron and Petrobangla.
Copies are being scanned and provided by email to the desk
and L. Chowdhury also provided 'side letters' to subsequent
GPSAs, which refer to the ongoing dispute and specifically
refer to the arbitration clauses in the PSC and GPSA.
Chevron's Legal Director Chye Koh also provided Econoff with
a copy of a translation (prepared by Chevron) of the
Bangladesh Court's Order staying the arbitration.


6. (C) Chevron refuted Petrobangla's claim that any prior
arbitration had been held in this case, but noted that
Petrobangla had produced an 'export report' in 2004 that
Barrister Haque has mischaracterized as a binding arbitral
report. In the translation of the Bangladesh Court Order
provided by Chevron, this "decision of the Sole Expert"
figures prominently in the decision granting the temporary
injunction against the ICSID arbitration. Regarding possible
settlement, Chevron representatives feel that a settlement is
less likely now due to Barrister Haque's position on the
Anti-Corruption Commission. In fact, Chevron claims
Petrobangla and the Energy Ministry have warned that
Barrister Haque's position on the ACC is a serious impediment
to any settlement, since any settlement which displeases
Barrister Haque would expose them to allegations of

DHAKA 00001349 002 OF 002


impropriety or even of that Chevron bribed them to settle.

NEXT STEPS
==========


7. (C) The ICSID hearing is scheduled for August 20, 2007,
and Chevron has the written order from the Bangladesh court,
as well as letters from Barrister Haque on behalf of
Petrobangla, threatening sanctions - including fines and jail
- if Chevron participates. Barrister Haque has also
provided a letter to ICSID, which specifically threatens it
with contempt of court if ICSID proceeds with the arbitration
as scheduled. Chevron continues to pursue appeals through
the Bangladeshi legal system as of August 16.

ACTION REQUEST
==============


8. (C) Post agrees with EB's suggestion, Ref B, regarding a
letter to the GOB on this matter. Post's preference would be
for a letter from Daniel Sullivan, the Assistant Secretary of
State for Economic, Energy and Business Affairs. The
overarching consideration, however, is that the letter be
presented in advance of the August 20 ICSID hearing date and
a letter from a lower level would be preferable to nothing if
schedules will not allow a letter from the A/S.


9. (U) Post suggests the following text for the letter:
"The United States Government is aware of the ongoing dispute
between the People's Republic of Bangladesh and Chevron which
has been referred to arbitration with the International
Centre for Settlement of Investment Disputes (ICSID). It is
of serious concern to the United States government that the
Government of Bangladesh is attempting to block the
jurisdiction of ICSID in this matter, despite clear language
in the Production Sharing Contract specifying ICSID as the
proper venue for such disputes. I would like to point out
the risk this situation presents to Bangladesh's commercial
reputation, as other companies watch this case closely for
signals about the sanctity of contract in Bangladesh and
treatment of foreign investors. I also want to emphasize at
this point that our concern is not with the merits of the
case, only that the contract specifies ICSID as having sole
jurisdiction in such matters. I hope that this matter can be
resolved through impartial international arbitration, in
accordance with Bangladesh's treaty obligations under the
Convention on the Settlement of Investment Disputes between
States and Nationals of Other States."
PASI