In last week’s post, we discussed various non-recoverable costs in the recent
Sri Lankan Model Petroleum Resources Agreement. In this post, we discuss non-recoverable costs Bangladesh’s recent Model Offshore Production Sharing Contract (“PSC”).
Clause 14.3 of the Model PSC states:
“Subject to the Accounting Procedure and the auditing provisions of this Contract, Contractor shall recover all costs and expenses not excluded by the provisions of this Contract and the Accounting Procedure in respect of all the Exploration, Appraisal, Development, Production, Abandonment and related operations hereunder with respect to the Contract Area to the extent of and out of a maximum of seventy five percent(75%) of Petroleum from both shallow and deep sea blocks per Calendar Year of all Available Oil/ Natural Gas/ Condensate/ NGL from the Contract Area (hereinafter referred to as “Cost Recovery Petroleum”).” (emphasis added)
Clause 14.3 excludes recovery of those costs which are held as such in the PSC and its Accounting Procedure (Annexure-B to the Model PSC). Section 7 of the Accounting Procedure contains a list of 26 heads of non-recoverable costs.
Similar to the exercise we did for Sri Lanka’s MPRA, we have classified these 26 heads into distinct buckets and have tabulated it:
|
Category
|
Description
|
Section 7 Items
|
|
Before Effective Date / Outside Bangladesh / Outside Measurement Point
|
Costs incurred before the Effective Date not incurred under Work
Program and Budget; costs incurred beyond the measurement point; income tax
and other taxes incurred outside Bangladesh; certain administrative overhead
outside Bangladesh.
|
c, h, i, s
|
|
Financing and Fund-Raising Costs
|
Interest and financing charges; expenditure to negotiate, obtain or
secure funds, exchange losses on financing, etc.; expenditure for furnishing and maintaining bank
guarantees and indemnities
|
a, q, r
|
|
Unsupported / Unapproved Costs
|
Costs lacking proper original records; charges for goods & services
unsupported by supplier/ sub-contractor agreement costs; not included in
approved Work Program and Budget; emergency expenditure not timely reported
to Petrobangla; donations and contributions not pre-approved by Petrobangla; benefits
not identified as recoverable under Section 3.1(c).
|
b, e, m, n, p, v
|
|
Excess Costs / Gold-Plating / Unreasonable Expenditure
|
Goods and services priced above international market rates; material
costs exceeding permitted values; costs not reasonably required for Petroleum
Operations; materials and services exceeding allowable valuation principles.
|
d, f, g, t
|
|
Taxes and Contractual Payments
|
Income tax payable by Contractor; payments under Articles 20.1-20.4 (bonuses)
and 25.6 (training of Petrobangla employees).
|
j, o
|
|
Dispute Resolution Costs
|
Costs of expert determination and arbitration.
|
k
|
|
Fines, Penalties; losses from PSC and third party contracts; negligence
|
Fines and penalties; Costs resulting from willful misconduct or
negligence of Contractor; amounts paid with respect to non-fulfillment of a
contractual obligation with third party and loss due to non-compliance of PSC
|
l, x, z
|
|
Partnership / Joint Venture / Acquisition Costs
|
Costs of creating or managing partnerships or joint ventures; acquiring
interests in the Contract or Contract Area.
|
u
|
|
Insurance-Related Exclusions
|
Costs covered by insurance; losses resulting from failure to insure;
recoverable insured losses not claimed; losses that would have been covered
under approved self-insurance arrangements.
|
w(i)-(iv)
|
|
Committee and Governance Costs
|
Expenses of members of the Joint Management Committee (JMC) and Joint
Review Committee (JRC).
|
y
|
Like the Sri Lankan MPRA,
Bangladesh’s Model PSC also displays a long list of items that are not cost recoverable.
