Bangladesh settles decades-old US power firm's lawsuit for $20m

The government has decided to settle a long-standing lawsuit by paying $20 million in compensation to a power generation company of the United States. 

This is the same case that last year put Finance Adviser Salehuddin Ahmed and Bangladesh Bank Governor Ahsan H Mansur at risk of arrest during a visit to the US.

The Power Division has settled the case filed by Smith Cogeneration (Bangladesh) Private Limited, a fully-owned subsidiary of Smith Cogeneration International of the US, through out-of-court mediation. A condition of the settlement is that the company will withdraw all cases it has filed against the Bangladesh government in various countries, including the US.

Power, Energy, and Mineral Resources Adviser Muhammad Fouzul Kabir Khan told TBS over the phone yesterday that the Economic Affairs Advisory Committee has approved the release of funds as requested by the Power Division.

"The company has filed cases against Bangladesh in the courts of several countries, including Switzerland, Scotland, the US and the United Kingdom. An escrow account will now be opened, where the money will be kept. The funds will only be released once all these cases are withdrawn," he said.

The power adviser said due to the cases filed by the company, the import of equipment for several of Bangladesh's projects, including the Ashuganj Power Plant, has remained halted.

He said, "Bangladesh had made a mistake in this matter. When the company went for arbitration, Bangladesh did not appoint any legal counsel. As a result, the arbitration ruling went in the company's favour."

Dispute

According to a Power Division report, in 1997, an agreement was signed between Smith Cogeneration (Bangladesh) Private Limited and the Bangladesh Power Development Board (BPDB), along with the Bangladesh government, to set up a 100-megawatt barge-mounted power plant in Haripur of Thakurgaon. 

In the same year, a power purchase agreement and an implementation agreement were also signed. As per the agreement, the company was to implement the project within 10 months, with commercial power generation scheduled to begin from 15 August 1998.

The company failed to set up the plant within the stipulated time and did not even begin any construction work at the site. It proposed signing a supplementary agreement to extend the deadline by an additional six months and 20 days. 

However, the government rejected the proposal, and due to the company's failure to complete the work within the agreed time and conditions, the power purchase agreement was cancelled on 15 February 1999. Additionally, the company's performance bank guarantee of $1,500,000 was encashed in favour of the BPDB. 

Following this, the company filed lawsuits with the sub-judge courts of Dhaka and Narayanganj challenging the cancellation of the power purchase agreement and the related land lease agreement, but those cases were later dismissed.

In addition to filing cases with Bangladeshi courts, the company raised objections under ICC Arbitration against the cancellation of the agreement and the encashment of the performance bank guarantee. On 21 February 1999, it sent a notice to the BPDB requesting arbitration. Following this notice, the BPDB issued a letter to appoint Ajmalul Hossain QC as an arbitrator.

The ICC Tribunal determined a total arbitration cost of $950,000 for the case abroad, which was to be borne equally by both parties. Of this, an advance payment of $120,000 was required, meaning the BPDB would have had to initially pay $60,000.

Considering the substantial expense involved, and based on legal advice and the decision of BPDB's 852nd general board meeting, the BPDB refrained from making the payment. Instead, while the case was still under trial in Bangladeshi courts, the BPDB raised legal objections to the company's move to proceed with arbitration in London.

Subsequently, following a unilateral hearing, the ICC Arbitration Tribunal announced its award on 30 October 2003, directing the BPDB to pay $13.06 million in favour of Smith Cogeneration (Bangladesh) Private Limited. The tribunal also ordered the payment of interest at a rate of 4% per annum in case of delay.

Finally, on 19 May 2024, the United States District Court for the District of Columbia issued a revised final judgment against the BPDB. Under the judgment, the BPDB was served a notice to pay $31.71 million.

While Finance Adviser Salehuddin and Bangladesh Bank Governor Mansur were in the USA to attend the World Bank and IMF Annual Meetings last year, the District Court for the District of Columbia issued an order directing them to deposit the amount. The court even issued arrest warrants against them. However, Bangladesh later appointed legal counsel and successfully had the warrants stayed.

Mediation process

Subsequently, on behalf of Bangladesh, an offer was made to Smith Cogeneration (Bangladesh) Private Limited to resolve the matter outside of court. The company accepted the proposal, and Chief Adviser Mohammad Yunus gave his principled consent to the mediation process.

Under the presence of mediators appointed by the United States District Court for the District of Columbia, five online mediation sessions were held with representatives from Smith Cogeneration (Bangladesh) Private Limited, as well as the attorney general of Bangladesh, the Power Division, and the BPDB. 

During these sessions, Bangladesh proposed settling the dispute by returning the $1.5 million seized from Smith Cogeneration in 1999. In response, the company, through its representatives, demanded $31.71 million based on the final judgement of the ICC Arbitration Tribunal ($13.06 million) and an additional $18 million to cover litigation-related costs. 

Bangladesh proposed not only returning the $1.5 million but also invited Smith Cogeneration to invest in the power sector under the existing laws of Bangladesh. However, the US firm did not accept the proposal. Finally, Bangladesh offered to settle the dispute for $10 million. In response, Smith Cogeneration proposed either a one-time settlement for $25 million or a settlement of $24 million along with opportunities to invest in two power projects.

Finally, the attorney general confirmed that the dispute was settled for $20 million. Smith Cogeneration authorities agreed to withdraw all related cases worldwide, with a commitment not to file any future lawsuits. A settlement agreement was signed between both parties on 28 April, under which Smith Cogeneration will receive the $20 million, with Bratschi Ltd, a legal institution in Switzerland, appointed as the escrow agent.

Meanwhile, BPDB's law firm, Foley Hoag LLP, has charged the government $396,000 in legal fees. As a result, the Bangladesh government has had to spend a total of $2.4 million to resolve the case.