BANGLADESH OPENS BIDS ON OFFSHORE EXPLORATION FOR

UNCLAS SECTION 01 OF 02 DHAKA 000517 SENSITIVE SIPDIS DEPT FOR SCA/PB AND EEB/ESC E.O. 12958: N/A TAGS: ENRG EINV EMIN PGOV BG SUBJECT: BANGLADESH OPENS BIDS ON OFFSHORE EXPLORATION FOR OIL AND GAS SUMMARY -------------- ¶1. (SBU) The Government of Bangladesh May 7 opened bids from international energy companies interested in exploring for oil and natural gas in the Bay of Bengal, as Bangladesh seeks to secure future energy resources. Following discoveries of natural gas reserves off the Indian and Burmese shores in recent years, there is widespread optimism similar discoveries will appear off of Bangladesh's coast. Only seven companies submitted bids, a number far lower than had been anticipated. Prior to the opening local media had reported a large number of potential bidders had expressed interest. However, energy company officials privately had expressed concerns about the conditions of the production sharing contract (PSC) and questions over jurisdiction in the waters adjacent to international borders. OFFSHORE BIDS INVITED -------------- ¶2. (SBU) The so-called Third Round of International Bidding, following two bids for onshore exploration in 1993 and 1997, offered 28 blocks of offshore territory in the Bay of Bengal to bidders for 25 years of exploration and production. Petrobangla, the state-owned energy giant, floated the tender in February, hosted a road show for interested companies in March and accepted bids until May 7. Petrobangla officials told Econoff that 28 companies had purchased bid documents indicating their interest in bidding, including Chevron and ConocoPhillips (U.S.),Total (France),British Petroleum, Cairn and Tullow (U.K.),CNOOC (China),Santos (Australia) and Indian Oil (India). Only seven companies eventually submitted bids, including Santos, ConocoPhillips, Longwoods (US-China),CNOOC, Comtrack (Cyprus),Tullow and Korea National Oil Corporation (South Korea). Officials from Chevron, the largest foreign gas producer in Bangladesh, had informed Post immediately before the opening that Chevron would not submit a bid. ¶3. (U) The tender documents included a model production sharing contract (PSC),which set a minimum share of 'profit production' for Petrobangla at 55%. It would allow exports of natural gas only after domestic demand has been met. Contracting companies could fully repatriate profits, equipment for operations could be imported duty free, and there would be no royalty payments. REACTIONS FROM ENERGY COMPANIES -------------- ¶4. (SBU) Meetings with Petrobangla and U.S. energy companies had revealed a diversity of perspectives on the prospects for the tender. Petrobangla was upbeat, citing the large number of companies that expressed interest and touting the advantages of the model PSC, particularly the clauses on profit repatriation and duty-free import of operating equipment. However, executives from the two major U.S. companies privately shared their concerns about the proposed fiscal terms of the PSC and the limitations on selling for export, warning that these conditions would discourage potential bidders. ¶5. (SBU) Another serious issue concerned national jurisdiction. Some company executives expressed surprise the GOB saw no apparent urgency in resolving territorial disputes with Burma in some of the offshore areas included in the tender. The media reported that Burmese authorities were lobbying some potential bidders not to participate in the tender. When Econoff had raised with Petrobangla officials concerns about the territorial dispute, they implied they saw no major obstacle, citing the example of the world's largest offshore natural gas field that lies in disputed territory between Qatar and Iran. Both countries have been producing gas from that field for years without a defined boundary, the officials said. ¶6. (SBU) One U.S. oil executive told Econoff the Special Assistant for Energy, M. Tamim (the approximate equivalent of Energy Minister in the Caretaker Government) recognized the weaknesses of the model PSC. Tamim decided, however, not to send it back to the drawing board, which would have resulted in further delays of the tender process. The oil executive DHAKA 00000517 002 OF 002 had said he believed many of the Western bidders would submit non-conforming bids. COMMENT -------------- ¶7. (SBU) Non-conforming bids from U.S. and other companies would signal interest in exploration but highlight problems with the PSC. Some U.S. oil experts speculated other companies might submit conforming bids now and the winning firm would renegotiate the contract once awarded. It is a good sign the GOB is interested in foreign investment in energy; previous and ongoing foreign energy projects have often been the targets of public criticism in Bangladesh. Some critics claim foreign energy investors divert resources and profits away from the country. They also strongly criticize the potential environmental impacts. There is no question, however, that Bangladesh is in desperate need of fuel for its power sector, which requires far more capacity than currently exists. Moriarty