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Petrobangla's notice to terminate gas project is invalid, may affect energy security in country: Summit Group
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- 22 January, 2025
Summit Group has urged the Bangladesh Oil, Gas and Mineral Corporation (“Petrobangla”) to reconsider a notice to terminate the country’s third Floating Storage and Regasification Unit (“FSRU”) project. It said the termination was not only invalid but that any delay to the project, for which Summit has already invested approximately USD 20 million on implementation, could result in further energy insecurity in Bangladesh.
Summit LNG Terminal II Co. Ltd. (“SLNG II”), a Dhaka subsidiary of Singapore-based Summit Power International Limited (“SPIL”), wrote to Petrobangla to state its objections to the notice.
SPIL, the largest private sector power generation and energy infrastructure company in Bangladesh, is the parent company of Dhaka-based Summit Corporation Limited (‘SCL”), which owns SLNG II.
Petrobangla and the Bangladesh Ministry of Power, Energy and Mineral Resources on 14 January 2025 issued a letter notifying that certain conditions under the Terminal Use Agreement (“TUA”) signed earlier with SLNG II had purportedly not been fulfilled and as such the TUA is terminated.
SLNG II had signed the TUA and IA for the 3rd FSRU on 30 March 2024 with Petrobangla and the Government of Bangladesh respectively. The TUA and IA were legally vetted and approved by the Cabinet Committee on 12 December 2023. The 3rd FSRU, the second such project in Bangladesh undertaken by Summit Group, has a planned regasification capacity of 600 million standard cubic feet per day, which would require investment of about USD 550 million coming in as foreign direct investment (“FDI”).
However, on 7 October 2024, Petrobangla notified that the project in southeast Bangladesh would be terminated. Since then, Summit Group has obtained legal advice from both local and international legal firms which affirmed that such termination is invalid pursuant to the terms of the TUA. Based on such advice, Summit Group engaged with Petrobangla and the Government of Bangladesh to reconsider the decision.
Petrobangla’s notice of 14 January 2025 states that the decision to terminate was on the basis that a performance bond (“PB”) for the project was not submitted by SLNG II but by its local parent, SCL; that the submission of the PB did not comply with an agreed template; and that the PB was not submitted within a 90-day stipulated deadline.
In response, SPIL, citing advice from renowned law firms Herbert Smith Freehills of Singapore and Dr Kamal Hossain & Associates, said Petrobangla had earlier acknowledged receipt of the PB submitted in the form of a bank guarantee, which does not provide any less security. Nonetheless, as a gesture of goodwill, SLNG II is willing to replace the PB in the form of a bank guarantee issued in its name.
SPIL said that the TUA provides a strict timeline of 30 days by which Petrobangla may raise any objections with regard to any performed conditions precedent. Petrobangla did not raise any objection during the stipulated time. SPIL has been advised by their counsels that the issues raised by Petrobangla for the purported termination of TUA are not supported by the terms of the agreement.
Under the TUA if any condition precedent of the TUA had not been met, either party could have submitted written notice within the 30-day stipulated period, but Petrobangla had not done so and, therefore, does not have any right to terminate.
SPIL also clarified that as the PB submission deadline fell on 28 June 2024, a non-banking day in Bangladesh, the bond was delivered on 30 June 2024, the next banking day. Under Bangladesh law, if any act is directed to be undertaken on a certain day when the office is closed that day, the act is considered to be undertaken in due time if it is done on the next working day.
SLNG II has already incurred approximately USD 20 million for long lead items, metocean and geophysical studies and administrative and legal fees related to the project.
“As has been widely reported in Bangladesh media, the country is in dire need of energy infrastructure, including the country’s third FSRU. Any delay in the implementation of this project would result in further energy insecurity in Bangladesh. As per contract and in the interest of securing much-needed energy infrastructure, we humbly submit that the termination of the TUA is invalid and should be reconsidered,” SPIL said.
“The Summit Group is the largest private sector investor in energy in Bangladesh with a proven track record of developing long-term infrastructure projects in a responsible and transparent manner. Our investments have helped to catalyse FDI into Bangladesh. Once again, we respectfully urge the Government of Bangladesh to uphold the sanctity of contracts and to ensure that investors' rights are protected and treated fairly and equitably,” SPIL said.
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