An international arbitration tribunal has ordered Canadian energy company Niko Resources to pay $42 million in compensation to Bangladesh over the 2005 explosions at the Tengratila gas field in Chhatak, Sunamganj.
The verdict was delivered on December 18 last year by the International Centre for Settlement of Investment Disputes (ICSID).
Officials at the Energy Division, Petrobangla and Bapex told The Daily Star yesterday that they learned of the award after receiving a summary of the ruling from their legal counsel a few days ago. They said the full text of the verdict is expected soon, after which the government will decide its next course of action in consultation with lawyers.
The compensation was set against a $1.014 billion claim jointly filed by the Bangladesh government and Bapex, seeking damages for Niko’s responsibility in the explosions that led to large-scale gas flaring.
“The claim was much bigger. We need to get the full verdict to know what was considered in the judgement to set the amount. But it is clear that the ICSID found Niko guilty of their negligence in operating the gas field,” Power, Energy and Mineral Resources Adviser Muhammad Fouzul Kabir Khan told The Daily Star.
According to a Petrobangla source, the tribunal awarded $40 million for the loss of around 8 billion cubic feet of gas, and an additional $2 million for environmental and other damages.
Officials from Petrobangla and Bapex said Bangladesh had sought a significantly higher amount of compensation at ICSID than what was initially claimed domestically, an issue that came up during the hearings. They added that other legal considerations were also involved, making it difficult to comment definitively before reviewing the full ruling.
They also said that during the previous government’s tenure, premature disclosure of information related to the verdict had created complications, including allegations of breaching ICSID’s confidentiality. As a result, authorities are proceeding cautiously this time.
Petrobangla and Bapex officials said Niko caused losses amounting to several thousand crore taka, while substantial sums were spent on litigation over the years. Compared to these losses and legal costs, the compensation amount is not considered financially satisfactory.
“The compensation amount is disappointing compared to the claim. Once the full verdict is received, it will be reviewed carefully. The total cost of litigation is also being assessed,” said a senior government official involved in the proceedings, requesting anonymity.
Gas from the Tengratila field was supplied to Chhatak Cement Factory and Paper Mill after the discovery of gas there in 1959. The well was shut down due to water intrusion after extracting about 26.46 billion cubic feet of gas.
The field remained inactive for years before being handed over to Niko for exploration in 2003. During drilling operations, two major explosions occurred on January 7 and June 24, 2005.
The fires destroyed gas reserves in parts of the field and caused extensive damage to nearby infrastructure and assets. Petrobangla initially demanded Tk 7.46 billion in compensation from Niko, which the company refused to pay.
In response, Petrobangla filed a case in a local lower court in 2007 and suspended payment of gas bills for Niko’s Feni gas field. The High Court later ordered the seizure of all Niko assets in Bangladesh and annulled its contracts, a decision subsequently upheld by the Supreme Court.
In 2010, Niko filed two complaints at ICSID alleging non-payment of gas bills and compensation. In a 2014 ruling, ICSID directed Petrobangla to pay dues for gas from the Feni gas field. Subsequently, in 2016, Bangladesh initiated arbitration at ICSID, seeking $118 million in compensation for Bapex and $896 million for the government.
On February 28, 2020, ICSID delivered a preliminary ruling in favour of Bangladesh, which the Energy Division announced at a press conference the following month.
According to Petrobangla sources, drilling operations at Tengratila were conducted under Niko’s supervision and management. The explosions occurred due to failure to follow international petroleum industry standards and inadequate safety measures, making Niko directly responsible -- an issue considered by the tribunal in determining the penalty.
The gas field is divided into Chhatak East and Chhatak West (Tengratila). While one gas-bearing layer in Chhatak West was destroyed in the fire, other layers and the Chhatak East reserves remain intact. The field’s potential reserves are estimated at 2 to 5 trillion cubic feet.
As the government works to increase domestic gas production, a development project proposal (DPP) has already been prepared for drilling new wells at the Chhatak gas field. Once the final ICSID verdict is received, Petrobangla officials said, the next steps will be taken after consulting legal experts.
