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Wednesday, August 26, 2009

Bangladesh: The Blowback of Corruption

Canadian company leaves environmental scars, trail of allegations


Click here for the video story which shows the impact of the disaster on local schools and villagers and the environmental damage still evident today

THIS PAST January, Niko Resources Limited, a Calgary-based energy company, made what must have been an embarrassing announcement: the Royal Canadian Mounted Police (RCMP), the company said, was probing the possibility that Niko had made illegal payments to government officials in Bangladesh.

This past January, Niko Resources Limited, a Calgary-based energy company, made what must have been an embarrassing announcement: the Royal Canadian Mounted Police (RCMP), the company said, was probing the possibility that Niko had made illegal payments to government officials in Bangladesh.

The Canadian investigation constituted a kind of deja vu for Niko. Two years earlier, from its offices in Calgary, Niko executives had watched a similarly disquieting event unfold: Bangladesh's Anti-Corruption Commission (ACC), a government regulatory body, arrested about a dozen people connected to Niko, including two former Bangladeshi prime ministers and several high-ranking government officials. In what has become one of the country's largest scandals, they were all indicted for helping Niko to obtain a natural gas contract through bribery.

A Company on the Rise
Founded in Alberta in 1987, Niko made a name for itself by developing natural gas fields in difficult to work places such as India and Bangladesh. The company became something of a darling to the financial press; between 2001 and 2006, its market cap grew from $220 million to $2.5 billion. In the late 1990s, hoping to repeat its success in India, Niko moved into Bangladesh. But the Bangladeshi government disqualified the company from bidding on gas projects, saying it lacked the technical expertise and financial resources.

And yet somehow, by 2003, Niko had signed a lucrative joint venture agreement with the Bangladesh Petroleum Exploration and Production Company (BAPEX), a state-owned gas company. The agreement, negotiated behind closed doors, gave Niko control of two vast fields -- Tengratila, near the Indian border, and Feni, in the south -- with a potential value of roughly $750 million.

Citizens groups and the local press were aghast. "Breaching its policy, the government last month secretly awarded the company an unexplored gas field..." Bangladesh's Daily Star newspaper reported. More controversies soon followed.

In January 2005, as Niko started drilling a gas well in Tengratila, it accidentally set off an explosion that blew up the field. No one was killed, but the fires destroyed billions of cubic feet of gas and forced thousands to evacuate.

Then, in June 2005, as Niko was trying to contain the first blowout, it set off another explosion. The accidents caused massive protests around the country.

How Niko handled the crisis only added fuel to the fire. At first, it refused to pay for damages, and a legal dispute with the government ensued. Then, in the middle of the dispute, Niko gave BAPEX, its government partner, a $100,000 Land Cruiser. BAPEX, in turn, presented it to the energy minister, AKM Mosharraf Hossain. As it happened, Hossain was in charge of overseeing the explosion compensation claims.

Given the timing, the vehicle immediately caused a stir.

Newspapers, quoting anonymous government sources, reported that Hossain received the car in return for delaying the multimillion-dollar compensation claims then confronting Niko. An editorial in The Daily Star questioned: "The point is -- was it a gift? If it was, how and why was it?"

Days after the scandal broke, Bangladesh's prime minister at the time, Khaleda Zia, forced Hossain to resign. And over the course of the next year, Niko eventually paid out $525,000 in compensation to roughly 620 families affected by the disaster, and another $100,000 to plant trees. The outcry over the "gifted" Land Cruiser and Niko's other controversies seemed, for now, to have gone away.

Rather, a new chapter of trouble was just beginning.

Corruption Out of Control
During the reign of the Bangladesh Nationalist Party (BNP), in power between 2001 and 2006, Transparency International ranked Bangladesh as the most corrupt country in the world for several years in a row. In fact, by 2006, corruption had become so bad that basic services like water and electricity had broken down, leading to violent protests.

The unrest, coupled with political infighting, threatened to destabilize Bangladesh's democracy. So the army stepped in and took control of the government. One of its first acts was to declare a war on the graft committed by the BNP government. Some 1,200 agents of the country's Anti-Corruption Commission (ACC) were given special powers to investigate, indict and arrest.

In 2007, they opened a case file on Niko.

During its investigations, the ACC uncovered a trail of allegations: According to statements recorded by magistrates in January, Niko had hired businessmen to pay off corrupt officials to win its natural gas contract. The evidence also implicated a former law minister, Moudud Ahmed. To date, none of these allegations has been proven, and the charges are still pending in court.

Among those arrested was the former energy minister, Hossain. (The allegations that Niko gave him a car as a bribe were never proven. But several cases of corruption are currently pending against him in Bangladesh's high court.) Niko has denied any illegal conduct.

Two former prime ministers were also arrested in the case, but the evidence against them was scant, and the charges were dropped. No Canadian executives of Niko were charged, but an arrest warrant was issued for the company's vice president in Bangladesh, Kashem Sharif. He has since fled the country and is now a fugitive.

Lawsuits have piled up. After the Tengratila explosions, the Bangladesh Environmental Lawyers Association (BELA), a public interest law firm, estimated the true scope of damage in Tengratila at more than $100 million. In 2006, it sued Niko for failing to pay adequate compensation to local people. As a result of the case, the Supreme Court was petitioned to freeze Niko's bank accounts in Bangladesh and withhold payments on gas revenues, causing the company to incur at least $27 million in arrears as of June 2009.

The case brought by the environmental lawyers stalled during the political unrest in 2006. But this year, following the election of a new government, the Supreme Court has called for the case to be concluded as soon as possible. Final hearings are now underway.

In 2008, the Bangladeshi government tried to settle out of court with Niko to pay damages in the two explosions. When Niko failed to respond, the government filed another lawsuit seeking more than $100 million in compensation for lost gas and environmental damages. That case is also pending in court.

Five Years On
Today, five years after winning its controversial contract, Niko maintains only a marginal presence in Bangladesh. Most of its foreign executives have vacated the company's office in Dhaka. The field at Tengratila remains suspended. Only the equipment remains, watched over by a single manager and a few guards.

It remains to be seen how the Canadian government's probe of Niko will play out. Other than confirming that a formal investigation is underway, neither Niko nor the Canadian government has said any more on the matter; it is unclear which allegations of bribery the RCMP may be looking at.

There are concerns, meanwhile, that the Canadian government may not act on whatever evidence it finds. In June, Transparency International described Canada as being one of several governments 'laggard' in cracking down on companies that commit bribery abroad -- a charge Canadian authorities deny.

Niko, in the meantime, would not comment for FRONTLINE/World but in the past has publicly denied any wrongdoing. "We have a code of conduct...," Niko's chief financial officer, Murray Hesje, told the press in January. "We believe we behaved ethically and are unaware of anything illegal that the company's been involved with." #

First published in Frontline World, August 21, 2009

David Montero is a regular contributor to FRONTLINE/World reporting from across South Asia. He has reported on a number of corruption stories in Bangladesh in recent months