LafargeHolcim wins int'l arbitration against Jalalabad Gas

Jalalabad Gas Transmission and Distribution System Limited has to pay back Tk266 crore to LafargeHolcim Bangladesh Limited, collected additionally as gas bill, as per Singapore-based International Arbitration Tribunal order.

The tribunal also declared the validity of the gas sales agreement's (GSA) ceiling price provision and absolved the cement manufacturer from paying invoices exceeding this price.

The International Arbitration Tribunal passed the order in favour of the cement manufacturer on 15 September.

Thuhidul Islam, head of Communications of LafargeHolcim Bangladesh, told The Business Standard, "The award has been published and it is in favour of our company. Presently our legal team is reviewing the award."

Jitendra Kumar Das, deputy general manager (legal affairs) of Jalalabad Gas, said, "We have not received the Arbitration Tribunal's order yet."

The Appellate Division in 2021 ordered LafargeHolcim to pay gas bills at the rate fixed by the Bangladesh Energy Regulatory Commission, resulting in the multinational cement maker paying Tk266 crore additionally by June this year than the GSA price.

However, in a public disclosure, LafargeHolcim stated that the agreement with Jalalabad Gas provided a ceiling price, representing the maximum charge the gas company can apply for the supplied gas.

The dispute arose when Jalalabad Gas claimed that the price fixed by the BERC shall be applicable for the gas supplied by them to LafargeHolcim  irrespective of the provisions of ceiling price of the GSA.

LafargeHolcim was earlier paying gas tariff in line with the GSA signed with  Jalalabad Gas 15 years ago in January 2003.

According to the Jalalabad Gas official, the tenure of the GSA is till 2025. "But when it was signed, there was no provision for renewal of the contract, to adjust gas prices if they rise."

"LafargeHolcim was paying Tk7.91 per cubic metre as gas tariff against its gas consumption from the Jalalabad Gas, which was the ceiling price at $2.8 per Mcf (1,000 cubic feet)."

However, when the price per unit of gas used in the captive sector exceeded the "highest slab" mentioned in the agreement at the new rate announced by the BERC in September 2015, a dispute arose between the two organisations. 

As per the new rate, the country's cement factories' tariff almost doubled to Tk13.85 per cubic metre for captive power plants and Tk10.70 per cubic metre for gas consumption.

Jalalabad Gas sources said, the LafargeHolcim has been consuming around 16 million cubic feet per day (mmcfd) of gas in total of which it consumes 12.30mmcfd to run a boiler for cement production and remaining 3.70mmcfd to run a captive power plant.

However, Jalalabad Gas was incurring losses due to non-payment of the LafargeHolcim gas bill at the new price of the BERC.

For this reason, it became logical to renew the previous contract. But despite repeated attempts, it was not possible to make an agreement by adding increased gas prices. 

The Ministry of Energy and the Ministry of Commerce tried to hold several meetings, but no result came. 

Later, the Energy Division issued a final notice to LafargeHolcim. The cement maker was also warned that failure to sign a new contract within the specified time will result in a gas connection disconnection.

In February 2021, LafargeHolcim issued an arbitration notice to Jalalabad Gas to resolve the dispute in the International Arbitration Tribunal.