Natural Resources And Foreign Corporate: A Dilemma in Bangladesh

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Natural resources and foreign corporate: A dilemma in Bangladesh

The foreign oil, gas companies have been working in Bangladesh under the contract called Production Sharing Contract (PSC). First the cost benefits analysis of foreign companies activities were taken in 1998, when the total data and profit loss and sharing of resources were evaluated. In short, the result was not good and people’s interests were sacrificed.

The prime leverage of the PSC for any country is-

–         The investment or portfolio risk, which is totally borne by the investing foreign company.

–         The company will invest in exploration, and other activities that require capital and technology.

–         The host country just allow them and facilitate them thru’ investment recovery and profit sharing

–         Two elements important: cost recovery, and profit sharing. Cost is undeniable factor to meet; the profit sharing is the price of risks, cost and efforts.

Historical background:

The practice of PSC was first started in the beginning of 1960; Indonesia is the pioneer in this regard, and gradually followed by forty or more countries in Asia and Africa. Mainly oil and gas exploration is the domain where this contract has been used mostly. 

Bangladesh scenario:

AS per PSC 2008, the investing company can adjust its costs from the 55% of gas extracted each year, until and unless the cost is fully recovered this amount of gas will be pocketed by the investing company. Next question will automatically come what is the actual cost? Who will determine it? Audit firms role in this regard will be also under question? In Bangladesh there are some sectors where yet no law suits, and no questions one can raise, for example defense ministry, and audit firms. 

-The rest 45% of the gas or oil is known as profit product, of which the host country will get at least 55%. The company will have 55%+20%=75% and host will get 25% on an average of total resources as long as the cost is recovered fully.

-When the cost is fully recovered or adjusted, depending on the production volume 55%-80% will get Bangladesh. The more the volume would be the more share host would get. However, government statement is host Bangladesh will get up to 80% of the natural resources that is extracted by the foreign companies.

The reality:

At present Bangladesh have five gas fields under foreign companies actively operational under PSC. All of them have long been crossed the line of cost recovery period, so, what is coming out – profit gas. As per theory Bangladesh suppose to have 55%-80% of its shares. But as per data available, August 2011, a total of 1.3,00,00,000 cubic meter gas were extracted, of which host got only 20%.

In 2010-11 a total of 18.30,00,000 cubic meter gas was extracted, and again Bangladesh got only 20%.

So, it is clear that the investing companies have been enjoying their cost recovery period long after it is adjusted, meaning depriving the host country, this must not be without the help of audit firms. The trick is ever-inflated costs, which you cannot protest as long as auditors not saying anything! The costs are everlasting and ever increasing, critics say, adding the revenue expenditures with capital expenditures.

Strategy of foreign investors:

At the beginning of the search the investment flows are kept limited, due to risk factors, if the probability and research findings seem more positive the pace of investment also runs faster and volume increased. An after getting successful oil or gas fields, the companies spending spree becomes ‘free horse’, as it could be recovered. The costs then include everything from your pet’s shampoo to toilet paper, it bounds no accounting principles. Where is the audit firms’ role and responsibilities- they naturally become a collaborator with this corruption.

More examples could be cited: Gas fields need processing plants to send the gas to the consumers, for it Sangu project required the same too, as per Petro-bangla estimation a 150-200 unit capacity processing plant would be enough, but they set up a 500 unit capacity processing plant. Meaning adding a huge cost for nothing in return. Up till now it never used more than 150 capacities since its inception, the rest 350 units remained unused and a waste, that would be borne by host country. 


Does Bangladesh have any capacity to do by itself? Answer is yes. Why not doing then? Answer is conflict of interests among the policy makers and politicians. To be more simplistic and in word – Corruptions.

Since Bangladesh have no other options rather than to offer foreign corporates their jobs, due to its international pressures and political reasons. Having said that many experts do not subscribe this point of view, claiming that we can do that if there is only good political wills are there, and above all patriotic leadership is needed. Our political parties are kind of traders who trade everything!


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