The Sunday Times FT - Norway firm violates data agreement with CPC

Despite various arguments by the Petroleum Resources Ministry, on paper it’s clear that TGS-NOPEC Geophysical Company ASA, with whom Ceylon Petroleum Corporation (CPC) had signed a Non-exclusive Seismic Data Agreement in 2001, is in breach of contract, documents obtained by The Sunday Times reveals.

The Norwegian company is in violation of the agreement by failing to submit to Sri Lanka the data obtained from the 2D seismic surveys conducted in the Mannar Basin and for non-payment as per clause 6 of the original agreement.

According to section 6.2 of the agreement, the company is required to "submit to CPC within 30 days from completion of processing, one set of Deliverable free of cost for each Phase" of the survey conducted. However the company has failed to do so and instead of demanding the data and suing TGS-NOPEC for breach of contract, the Petroleum Ministry proposed that the government pay compensation to obtain the data which rightly belongs to Sri Lanka, as stated in the agreement.

Section 8.1 of the amended agreement put forward to the Cabinet by the Secretary of Petroleum Resources, states that the Petroleum Resources Development Committee (PRDC) “shall publicly announce the intention to enter into Product Sharing Contract (PSC) agreements in respect to the two Direct Negotiated Blocks, prior to the public announcement of the bid round.” This is in direct violation of the original agreement where it states that all blocks in the Mannar Basin will be auctioned off at the same time. Section 8.7 of the amended agreement requires the government of Sri Lanka to compensate TGS-NOPEC in the amount of $7 million. However, these two sections of the amended agreement puts the CPC in breach of contract and awards compensation to TGS-NOPEC at the same time although it was the company that was in breach of the contract in the first place Petroleum Resources Ministry Secretary A.K.A. Gunasekera, had also suggested granting two blocks in the Mannar Basin to India and China in the cabinet paper, thereby putting the CPC in breach of contract. The Strategic Enterprise Management Agency (SEMA) which has been entrusted with the management of the CPC has strongly opposed the proposal to pay the US $7 million as compensation on the grounds that it is TGS–NOPEC that is in breach of contract, which was reported by The Sunday Times last week. Petroleum Resources Minister A.H.M. Fowzie confirmed that two blocks in the Mannar Basin have been awarded to India and China after a cabinet paper for this purpose was approved. He said that the Attorney General was verbally asked for his opinion on giving the two blocks to India and China and the AG said since it was a government to government deal, his legal advice was not necessary.

But the minister said the controversial, amended agreement was not approved and that Sri Lanka is not in breach of any contract by giving the two blocks to India and China. He said they are now focusing on acquiring the data from TGS-NOPEC. When asked if Sri Lanka will have to give TGS-NOPEC any compensation, he said that it will depend on the legal opinion. A legal officer will advise the members of a new negotiating committee during negotiations with TGS-NOPEC this week so “we have to wait for the outcome of those discussions.”

Chief Operating Officer of SEMA, Chris Dharmakirti told The Sunday Times that SEMA was asked for observations by President Mahinda Rajapakse, on the cabinet paper submitted by the Ministry of Petroleum Resources on the TGS-NOPEC seismic agreement. However SEMA officials claim that despite the numerous warnings they raised, the Ministry of Petroleum Resources has refused to heed their advice despite a cabinet directive to follow SEMA instructions.

Dharmakirti added that the Secretary of Petroleum Resources should not have negotiated an amended agreement which exonerated TGS-NOPEC of their breach of contract through revision of the payment clauses in favour of the Norwegian company. Furthermore, he said that the Secretary should have demanded TGS-NOPEC to give the CPC the data from the 2D surveys free of charge at a meeting in Australia but instead, proposed an amended agreement that favours the Norwegian company by making Sri Lanka bound to a confidentiality clause with respect of the data it should receive.

"What was really bad about the cabinet paper was that it not only exonerated TGS-NOPEC of its breach but it put the government of Sri Lanka in jeopardy by proposing to the Cabinet that two blocks in the Mannar Basin be given to India and China," Dharmakiti said. "Furthermore, the same cabinet paper proposed that in giving these two blocks, the government will be in breach of its agreement with TGS-NOPEC and therefore, asked the Cabinet to approve a sum of US $7 million as compensation to be paid to TGS-NOPEC." He stressed that if the Petroleum Resources Secretary had consulted with the Attorney General or a lawyer with sector knowledge before submitting the cabinet paper and the amended agreement, he would have been told not to do such a thing. In addition, when SEMA independently sent the agreement to the Attorney General for his input, the latter concurred with SEMA's view.

When the cabinet paper had initially been submitted to the Cabinet, Secretary Gunasekera had been instructed by the Cabinet to follow SEMA observations.

Instead, it is learnt, the Secretary wrote to the President's Secretary stating he is not bound to carry out the recommendations set forth by SEMA, despite the fact that the CPC falls under the mandate of SEMA, created by a presidential decree on 24 April 2006.

SEMA has discovered that TGS-NOPEC has already sold the 2D seismic survey data conducted in the Mannar Basin to India and one other country for US $1 million each. Under the Agreement, TGS-NOPEC is bound to give Sri Lanka 5% of any data sold to a third party.