Energy & Power

Report

Model PSC for 3rd Round Bidding Okayed
EP Report

The Council of Advisors has approved the draft model production sharing contract and tender documents for the third round bidding, paving the way for Petrobangla to invite tenders for 28 offshore blocks for hydrocarbon exploration.

“After the approval, Petrobangla can now invite international tenders for the offshore blocks as per its schedule with an aim that gas exploration will begin in the deep sea in next winter,” said Special Assistant to the Chief Advisor for the Energy Ministry, Prof M Tamim.

The council, headed by the Chief Adviser Fakhruddin Ahmed, approved the draft, placed by the Energy Division.

The model PSC has proposed higher price of gas that Petrobangla will purchase from the selected international oil companies for eight shallow and 20 deep sea blocks. The PSC, however, has a provision that the companies will have to pay corporate tax.

Energy Secretary Mohammad Mohsin said that Petrobangla might invite the bids by late next week. ‘We will announce soon about the timeframe for the bidding,’ he said after the approval.

Officials said when Petrobangla goes for the bidding, it will be a significant development for the energy sector as the existing gas reserve is shrinking fast and the country is likely to face shortage by 2011.
The offshore areas have enormous potential as Myanmar and India have already discovered large gas reserves in the Bay near the maritime areas that belong to Bangladesh, they said.

The council meeting discussed on the India and Myanmar’s overlap of some proposed Bangladesh blocks for hydrocarbon exploration.

Officials told the meeting that Bangladesh would go ahead with the bidding process for 28 blocks to establish the claim for its water territory intruded by the two neighboring countries.

“If India and Myanmar raise any objection to the territory which is under our exclusive economic zone, a dispute will arise and it can be solved through negotiations,” said a senior official present at the meeting.

The officials said the model PSC for the offshore bidding round was formulated following a series of consultations with the officials of all ministries and departments concerned.

As per the PSC, the offshore blocks were divided into two parts based on water depth and availability of data on the blocks. There are eight shallow and 20 deep sea blocks. The size of each block will be around 2600-7000 square kilometers.

The exploration work plan for the deep sea blocks has been fixed for nine years while it will be eight years for shallow sea blocks.

The model PSC proposed higher gas price than the existing price for offshore gas for the international oil companies. The price of gas for 20 deep sea blocks will be 100 per cent of the High Sulfur Fuel Oil in Singapore market. But the upper ceiling of the price will be $180 per ton.

The price for eight shallow sea blocks will be 93 percent of the HSFO price with the same upper ceiling.

As per a Petrobangla estimate, the highest price of gas for deep sea blocks will be around $4.7 per 1,000 cubic feet or one unit while the highest price for shallow sea blocks will be around $4.4 per unit.

According to the existing PSC, used in second round bidding, the highest price for onshore gas is $2.9 per unit while the price of offshore gas is 25 percent higher than that of the onshore gas.

But if the corporate tax, which Petrobangla pays on behalf of the international companies, is included, the price of gas will be much higher than that of their documented value.

Although the model PSC for third round bidding proposed higher gas tariff, it keeps a provision that the IOCs will have to pay corporate tax.

The model PSC says the oil companies will have tax-free consumable and equipment imports with some exceptions. In case of oil discovery, the contractor will have to sell 80 percent of oil to the local market at a price of 15 percent less than international price.

There will be three biddable parts in the PSC – bank guarantee, profit (gas) sharing and work plan. The PSC emphasized that if any company wanted to transfer its operatorship of any blocks, it will have to take approval from Petrobangla.