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Cairn warns of withdrawing investment

Hasan Azad |
Update: 2010-07-15 20:29:51
Cairn warns of withdrawing investment

DHAKA: British oil company Cairn Energy has threatened to take out its investment from all hydrocarbon fields, including South Sangu and Magnama, if the government does not withdraw the corporate tax on gas sale to a third party.

But Energy Ministry and Petrobangla, the state-run petroleum corporation, could not fix their mind yet as to what is to be done.

A file containing the matters of Cairn’s corporate tax has been sent to the Prime Minister’s Office for the decision, a high official of the Energy Ministry, on condition of anonymity, told

Meanwhile, the draft of a new Production Sharing Contract (PSC) governing operations of the international oil companies also could not be signed on July 11 because of some complications arising out of the tax riddles.

Petrobangla Chairman Prof Hossain Mansur told, “The country is reeling from gas crisis and we are trying to resolve the problem at the moment.”

Mentioning Cairn’s interest in drilling at well No 11 in the South Sangu field, he said there are possibilities of getting additional gas from the mine.
The chairman informed that selling gas to a third party is mentioned in the PSC. Up till now, the gas in the share of the explorers is sold to government as per terms of the model deal to cater an insatiable domestic demand.    

The Energy Ministry and Petrobangla have tried to blame each other over the contentious matter for last few days.

Early in the month, the Petrobangla chairman had told that the Ministry would settle the tax-related matters. On the other hand, Energy Secretary Mohammad Mesbah Uddin said, “Petrobangla is looking into the matter. They can tell it better.”

On July 11, Cairn Energy said in a letter to Petrobangla they would withdraw from all wells, including South Sangu and Magnama, if the government didn’t withdraw the corporate tax on gas sales to third-party buyers. Managing Director of Sangu Phil Dolan sent in the letter.

The letter reads: making profit would be impossible from the funds needed for drilling two wells for ensuring additional gas supply to Chittagong within a short time and keeping the gas field running.

 “At the same time, drilling two wells in Magnama would not be financially profitable. Under the circumstances, imposing additional tax will discourage investment in this sector,” says the oil giant.

A high official of the Energy Ministry, wishing anonymity, said in August 2008 Cairn Energy had sought permission of selling out gas to a third party after striking gas in blocks 10 and 16.

At that time, the company set a condition that they would not continue in the business if they do not get permission for selling out gas or raising the gas price.

In this context, Petrobangla put forward recommendations to the Energy Ministry the same month for permitting Cairn to sell the gas if found in Magnama and Hatitya turfs under Block 10.

Block 10 covers a stretch of 3,864-square-kilometer area encompassing Noakhali, Laxmipur and Bhola districts.  
Earlier in March, Cairn demanded annexation of Sundalpur to Block 10 and allowing sale from South Sangu to a third-party buyer.  

A high official of Petrobangla, on condition of anonymity, told that a total of 40 to 50 million cubic feet of gas would have to be produced daily in South Sangu block if only to meet partly the local area’s needs.

According to section 10 of the model PSC, the exploration companies could sell gas to a third party if Petrobangla does not agree to buy for the national grid. And section 16 says either Petrobangla would purchase gas or the international company would sell it out to a third party.

BDST: 1635 HRS, JULY 16, 2010

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