Arbitration Settlement between Bangladesh and Chevron regarding payment deduction

Chevron Bangladesh Block Twelve, Ltd. and Chevron Bangladesh Blocks Thirteen and Fourteen, Ltd. v. People’s Republic of Bangladesh

Arbitration Settlement between Bangladesh and Chevron regarding payment deduction

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Citation: ICSID Case No. ARB/06/10

Case summary:

An international arbitration court turned down US oil giant Chevron’s age-old claim of around $240 million from Petrobangla. Chevron had filed the case with the International Centre for Settlement of Investment Disputes (ICSID) in March, 2006 saying Petrobangla has been illogically deducting over the years from Chevron’s earnings from gas sales.Even though Petrobangla claims the amount to be $70 million, Dr Kamal Hossain and Associates, which represented Bangladesh at the court, said the total would end up to be around $240 million.

After avoiding the arbitration for three years, Petrobangla went to the ICSID, a wing of World Bank, and submitted that the deduction was fair and legal.

The ICSID that heard the case between 2007 and 2009 in The Hague, Washington and London and announced its verdict of unanimous rejection of Chevron’s claim in 2010.

Petrobangla has been deducting four percent wheeling charge from its payments to Chevron for the purchase of gas from Jalalabad gas field, which is operated by the American company under a Production Sharing Contract (PSC). This charge is imposed because Chevron uses Petrobangla’s pipeline to transmit gas from Jalalabad field into the state-owned national gas network.

Petrobangla said it would collect another $312 million from Chevron as wheeling charge over the next 20 years. Though the dispute is quite old and Chevron wanted to settle the matter long ago through the ICSID, Petrobangla had been hesitant about going to the court.

After Chevron filed the case, Petrobangla avoided going to the ICSID till late 2008 and resorted to local courts. Chevron has been arguing that the four percent wheeling charge is applicable only if it uses Petrobangla’s pipeline to supply gas to other parties, but it has been supplying gas from the three gas fields–Jalalabad, Moulvibazar and Bibiyana–to only Petrobangla.

Petrobangla argued that it has been deducting the four percent charge as per the Gas Purchase Sales Agreement (GPSA) with Chevron.

After hearing the argument of both side, ICSID gave the verdict in favour of Bangladesh. It concluded that Petrobangla has been rightfully deducting the wheeling charges and it has the right to continue changing Chevron for the same.

** Some parts of this summery are collected from various sources for study purpose.