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International tribunal orders Canada-based Niko Resources to compensate Bangladesh for 2005 gas field explosion

05 May 2020

The International Centre for Settlement of Investment Dispute (ICSID) has ordered Canadian oil company Niko Resources to compensate Bangladesh for a 2005 explosion at the Chhatak gas field. The blast, which occurred while Niko was drilling in the field, caused considerable damage to the gas field and the local environment. Bangladesh filed a lawsuit in 2016 claiming over $1 billion in compensation.

According to The Daily Star newspaper, Bangladesh’s State Minister for Power, Energy and Mineral Resources Nasrul Hamid told reporters during a video conference on May 3 that the ICSID made its verdict on February 28. The tribunal will make a final recommendation on how Bangladesh should be compensated in the coming weeks.

The explosion in January 2005 occurred at the Chhatak gas field in the north east of Bangladesh while Niko Resources was drilling on the site. Niko had been invited to drill a well at the gas field in 2003 by Bangladesh Petroleum Exploration and Production Company Limited (BAPEX) which controls the natural gas field. 

A decade after the incident, Bangladesh filed its lawsuit with the ICSID seeking $1.14 billion in compensation to be split between BAPEX and the government. Minister Hamid told reporters that the compensation was for the destruction of properties and gas reserves in the field. In addition to the direct compensation, Bangladesh was also looking for compensation related to the impact to public health due to the blast and environmental compensation.

After a complex legal battle, the ICSID announced on February 28 that Niko had violated terms of its 2005 joint venture agreement with BAPEX and must compensate the company and Bangladesh. The tribunal found that Niko had failed to follow international standards and guidelines to conduct operations efficiently and safely. 

Legal proceedings first began in 2010 when Niko went to the ICSID seeking a ruling that the company was not responsible for the 2005 explosion. Before Bangladesh filed its own lawsuit in 2016, a Canadian court fined Niko after finding it guilty of bribing former Bangladesh Energy State Minister A. K. M. Mosharraf Hossain to obtain the rights to drilling at the Chhatak gas field.

Niko has also been accused of bribing several other officials in order to secure a one-sided drilling contract at the Chhatak field, according to The Daily Star.

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