Unocal has rejected Petrobangla’s compensation claim for the Magurchhara explosion (previously discussed in “Petrobangla Finalizes Magurchhara Explosion Claim”).

Petrobangla issued Unocal with a $685 million compensation claim, in addition to the Environment Ministry’s Tk6.1 billion environmental damage claim. Unocal argues that the matter was resolved through the signing of a supplementary agreement which allows Petrobangla an additional 5% share for gas discovered in certain blocks. Now the matter seems set to proceed to litigation.

The original agreement between Petrobangla and Occidental (Unocal's predecessor) was terminated for Occidental's failure to fulfil a minimum work commitment of drilling at least one exploratory well. In addition, Occidental failed to apply for an extension of the agreement at least 60 days before it was due to terminate. Occidental then offered the 5% share in return for allowing it to work in the blocks despite its non-fulfilment of the work commitment. Thus, Petrobangla argues, the 5% share does not constitute compensation for damage caused in the Magurchhara explosion.

Petrobangla’s compensation claim was filed on the basis of a report by an investigative committee. Petrobangla could not file the claim sooner because of an unwritten government gagging order. Indeed, Unocal had previously informed the media that the matter of compensation had been settled through the supplementary agreement and that over Tk3.5 billion had been paid to Petrobangla. Thereafter, Petrobangla issued a warning to Unocal, advising it to refrain from making such fictitious announcements.

The supplementary agreement proved difficult to reach from the outset; Petrobangla proposed several clauses including compensation for the Magurchhara explosion or inclusion of BAPEX, the state owned exploration company, as a partner of Occidental. Occidental rejected all proposals and a deadlock ensued. In another twist, Occidental’s senior officials assured senior politicians that the company would pay compensation for the explosion.

In May 2002, just before Petrobangla was due to submit its compensation claim to Occidental, the minister for energy allegedly requested that Petrobangla wait for a further review by foreign production sharing contract experts, even though the claim had already been approved by the energy ministry and the board of Petrobangla, and had been vetted by lawyers. One month later, no such experts had been hired and the ministry denied asking Petrobangla to refrain from submitting the claim.

The question arises: is the political leadership treating Unocal and Occidental with kid gloves following the Magurchhara explosion? The official report which named Occidental as being responsible for the disaster was kept secret as a classified document. Moreover, Occidental was allowed to continue working in Bangladesh with impunity after the explosion, was given an extension of the terminated agreement and was allowed to sell its Bangladeshi concern to Unocal in 1999. When Unocal took over Occidental's operations, it automatically inherited the latter's liabilities.

Now that Unocal has rejected the compensation claim, Petrobangla is expected to decide its next move in consultation with lawyers and the Ministry of Energy.

For further information on this topic please contact Azarul Haque at Legal Remedy by telephone (+880 2 955 0645) or by fax (+880 2 955 0645) or by email ([email protected]).