Summit’s 2nd LNG terminal deal cancelled for good

Highlights: 

● Summit was awarded the contract for the third LNG terminal last year under AL govt

● Interim govt first cancelled the deal in Oct, Summit indicated plans to take legal action

● Energy Adviser Fouzul Kabir confirmed that the deal was officially cancelled on 14 Jan

The interim government has officially terminated its contract with the Summit Group for the establishment of Bangladesh's third floating liquefied natural gas (LNG) terminal.

However, Summit, which already operates a floating LNG terminal in Maheshkhali, claimed that the cancellation was done on "invalid grounds" and requested a reconsideration.

The contract was awarded to Summit without competition on 30 March 2024, under a 2010 special law during the previous Awami League government.

After the fall of the Awami League government in August last year, the interim government first cancelled the deal on 7 October. Summit responded a week later, indicating plans to pursue legal action against the decision.

Energy Adviser Muhammad Fouzul Kabir Khan told TBS on Sunday that the deal between Summit LNG Terminal 2 Company Ltd and Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) was officially cancelled on 14 January.

"The deal was cancelled because the 2010 law under which the letter of intent for this LNG terminal was issued has been repealed [by the interim government]. Additionally, the company failed to meet the conditions outlined in the agreement," he said.

Energy Division officials said after receiving Summit's letter on 14 October, Petrobangla sought advice from the law ministry to avoid legal complications.

When asked why the contract was cancelled again after the October termination, Fouzul Kabir explained, "The cancellation was finalised based on the law ministry's opinion, considering Summit's arguments."

Currently, Bangladesh operates two Floating Storage and Regasification Units (FSRUs), owned by Excelarate Energy and Summit Corporation, with the capacity to supply around 1,100 mmcf of gas daily.

To meet rising industrial demand and offset declining domestic gas production, the Cabinet Committee on Economic Affairs approved Petrobangla's proposal to award the construction of a third LNG terminal in Maheshkhali, Cox's Bazar, to Summit on 14 June 2023.

Nearly a year later, the government signed a Terminal Use Agreement (TUA) and an Implementation Agreement with Summit LNG Terminal 2 Company Ltd.

The proposed terminal was intended to supply an additional 600 mmcf of LNG daily. Summit Corporation reportedly invested $20 million in the project.

This agreement was signed under the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, enacted in 2010 during the Awami League government to facilitate non-competitive bidding.

However, the interim government repealed the act in November last year, to ensure a competitive tendering process in the power and energy sectors.

In its 14 January termination letter to Summit, Petrobangla stated that the agreement was cancelled due to non-compliance with conditions. Specifically, Summit LNG Terminal 2 Company Ltd failed to submit the required performance bond within the 90-day deadline. Instead of the company submitting the bond, its parent, Summit Corporation, provided it, which Petrobangla deemed non-compliant.

On 15 January, Summit responded with another letter to Petrobangla, requesting reconsideration of the decision to terminate the contract on "invalid grounds". Summit claimed it submitted the performance bond on time.

Summit's response

Summit argued that Petrobangla had no right to terminate the deal under Article 27 of the Terminal Use Agreement (TUA), as the article was not yet effective. Additionally, apart from exercising the rights under Section 2.3(c) of the TUA, no other provisions allow Petrobangla to terminate the TUA at this stage.

Summit further stated that the performance bond, issued as a bank guarantee by the parent company, did not constitute a material breach, as it provided the same security to Petrobangla. Summit offered to replace the current performance bond with a new one issued solely in the name of the Terminal Company.

Summit also clarified that the failure to submit the performance bond within the stipulated 90 days did not constitute a breach of contract, citing Section 10 of the General Clauses Act 1897, which states that if an act is due on a day when offices are closed, it is considered timely if performed on the next business day.

Finally, Summit emphasised that Bangladesh urgently needs energy infrastructure, including the third LNG terminal, and any delay in its implementation would exacerbate the country's energy insecurity.