Gazprom deal to ease Dhaka arms purchases from Russia...

Gazprom deal to ease Dhaka arms purchases from Russia...

By Syed Tashfin Chowdhury

DHAKA - Bangladesh indicated its growing intimacy with Russia through the award last month of well-drilling contracts without going through a tender process and without a production sharing clause. Dhaka also hopes soon to obtain suppliers' credit worth US$850 million to procure Russian-made military equipment.

The government of Prime Minister Sheikh Hasima on December 20 approved contracts for drilling 10 wells in existing gas fields by Russia's Gazprom. The move follows the signing last year of an agreement with Russia for a nearly $2 billion nuclear power plant that will be set up in Bangladesh.

Bangladesh's cabinet committee on government purchases approved the onshore drilling contracts after almost two years of talks between state-owned Petrobangla and Gazprom, also state-owned. Gazprom had made an offer on a turnkey basis at a total cost of $193.55 million.

Gazprom is the first foreign company to partner Petrobangla in exploration without a production sharing contract (PSC).

Gazprom will drill five development wells in the Titas and Rashidpur gas fields. Titas is Bangladesh's second-largest gas field, producing around 444,000 million cubic feet of gas. Rashidpur, owned by Sylhet gas fields, is producing around 48,000 million cubic feet per day.

Gazprom will also drill five exploration wells in four gas structures at Shahbazpur, Semutang, Sundalpur and Begumganj, that are owned by Bangladesh Petroleum Exploration and Production Co Ltd (Bapex).

The drilling is scheduled to be completed within 18 months of approval being granted. Gazprom will pay 5% of the total cost as a performance guarantee.

Platts quoted Petrobangla chairman Hossain Mansur as assuring that they will "sit with Gazprom officials shortly to finalize negotiations before inking a deal over the drilling program", to settle outstanding issues such as a framework for compensation in the event of a blowout and the payment of insurance premiums.
The development was welcomed in Bangladesh, which requires fast solutions to its ongoing energy crisis. Against a demand of 2.5 billion cubic feet of gas per day (Bcf/d) , the country can supply only around 2.04 Bcf/d, a shortage that is set to worsen in an economy that has grown at a rate of at least 6% since 2003.

A law passed last year by the Awami League government allowed it to ensure fast implementation of power and energy projects while bypassing the tender process, paving the way for the Gazprom deal.

Polish oil and gas explorer Poszukiwania Nastyi Gazu Krakow was initially selected to drill five wells after a competitive tender process and rounds of talks that ended on September 2010. It subsequently backed out from the project. The gas that the Polish company was supposed to extract from the five wells would have been added to the Bangladesh national grid in 2012.

The Bangladesh cabinet considered a segment in the Gazprom proposal that referred US company Chevron digging nine wells in Moulvibazar and Bibiyana in Sylhet next year at an estimated cost of $19 million per well. Petrobangla officials, prior to the approval, had evaluated that Gazprom's quotation was "at par” and in some cases, "lower than other companies".

A final agreement for the job will be signed between the two governments in line with a bilateral agreement made between the two sides during Prime Minister Hasima's visit to Moscow in November 2010.

Dhaka also expects to conclude a deal with Moscow soon to obtain suppliers' credit worth US$850 million to procure Russian-made military equipment.

Bangladesh officials have claimed the procurement will "modernize" Bangladesh's armed forces. On November 21, 2010, during a speech to mark the Bangladesh armed forces' day celebration, Hasima assured the army her government would obtain for them high-quality tanks, self-propelled artillery, air-defense missile systems, fighter aircraft and helicopters.

The duration of the suppliers' credit from Russia will range from four to six years, Bangladeshi officials said following a two-day meeting in Moscow early last December. Major General Abdul Matin of Bangladesh armed forces division led the six-member Bangladesh team while KV Vyshkovskiy, director of state debt and state financial assets, led the Russian side.

The two teams designated Russian state-owned bank, Vneseconobank, and Bangladesh's state-owned Sonali Bank to handle the deal.

Bangladeshi Finance Minister AMA Muhith told Bangladesh's New Age later that although there were "many offers for loans including suppliers' credit by Russia and China”, the government would accept the loan deals "which would benefit the country [Bangladesh]".

New Age reported that besides procuring military equipment from Russia, Bangladesh will soon obtain "44 new tanks and three armored recovery vehicles from China and two helicopters from France" at "less than $200 million".

The incumbent Bangladesh government has enjoyed a strong bond with Russia since Bangladesh's liberation from Pakistan in 1971, when the Soviet Union was the first nation to recognize the new country. Bangladesh bought eight MiG-29 jet fighters for about $124 million from Russia during the last time Awami League government, which ended in 2001.

The nuclear power plant project deal between Bangladesh and Russia is expected to generate at least 1,000 MW of electricity by 2014. Russia is to assist in the design, construction and operation of nuclear power plants in Bangladesh and to train Bangladeshi engineers and officials....