Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited (“Bapex”) and Bangladesh Oil Gas and Mineral Corporation (“Petrobangla”), ICSID Case No. ARB/10/11

Overview

On December 18, 2025, an ICSID tribunal rendered an award on a dispute relating to two blowouts resulting from gas extraction in Bangladesh. Niko Resources (Bangladesh) Ltd (“Niko” or “claimant”) was found liable for the first blowout and was ordered to pay Bangladesh Petroleum Exploration & Production Company Limited (“BAPEX” or “respondent”) compensation for the loss of gas, atmospheric pollution, and disruption caused to locals (paras. 105–109). The award completes the first of two parallel ICSID cases brought by Niko: the present case, concerning liability for the blowouts under the Joint Venture Agreement (“JVA”) concluded by Niko and BAPEX (the “parties”) in 2003, and a second case concerning outstanding payments for gas delivered, which was completed by a separate award in 2021.

Background

The Chattak gas field is located in the north-east of Bangladesh, next to the small village of Tengratilla (para. 119). In 2004, Niko started drilling and a year later, the first blowout occurred (para. 125). The result was an eruption of gas and debris which spread, causing damage to the surrounding environment (paras. 128–129). Gas escaped to the surface and burned until the flare was eventually extinguished (para. 4). The second blowout occurred from the drilling of a relief well aimed at stopping the gas seepage (paras. 133 to 136). Although the second relief well was successful (para. 138), the damage resulting from the blowouts was long-lasting. The Government of Bangladesh (the “state”) estimated that it would take about 20 years to restore the lost forest resources (para. 2664).

The blowouts were described as an “environmental disaster” that damaged buildings, destroyed trees and crops, contributed to soil infertility, and caused other environmental losses. These were accompanied by the disruption of daily life, through the closure of businesses, interruption of electricity and water supply, and health impacts resulting from the emission of CO₂ from the burning of gas and trees. Locals suffered breathing difficulties, burning of the eyes and skin, and psychological trauma that affected their livelihoods (paras. 2094–2182). Despite the extensive harm, there were no casualties (paras. 6 and 129) and Niko’s post-blowout response partly repaired the damage and compensated the villagers for their loss.

Local court proceedings

The complexity of this dispute is characterized by a series of interconnected domestic court and international arbitration proceedings that unfolded over two decades, culminating in the rendering of the final award, running to more than 900 pages.

The BELA judgment

In 2005, the Bangladesh Environmental Lawyers Association (BELA) brought local court proceedings against the state, Petrobangla, BAPEX, and Niko, among others. BELA sought a declaration that the JVA was unlawful and had no legal effect and requested compensation for destruction of resources and damage caused to property and the environment by the blowouts. The court upheld the validity of the JVA, ordered Niko to pay compensation, and issued an injunction against payments to Niko (paras. 439 to 453).

The Alam judgment

In 2016, another set of court proceedings was initiated against Niko, in which the court, in a 2017 judgment, found that the JVA and the Gas Purchase and Sale Agreement (the GPSA) concluded in 2006 between Petrobangla and the parties had been obtained by fraud and were therefore void. The court also ordered an injunction against Niko and a stay in payments from the state, Petrobangla, and BAPEX (paras. 478–482).

The money suit

In 2008, Petrobangla and the state initiated proceedings against Niko for damages from the blowouts. To this day, no judgment has been rendered, and the proceedings remain pending (paras. 468–477).

Prior decisions of the tribunals

In 2010, following the initiation of the money suit, Niko commenced ICSID proceedings against the Government of Bangladesh, BAPEX, and Petrobangla, seeking payment of outstanding amounts for gas supplied and declarations that it had no liability for blowout damages and owed no compensation (para. 153). The tribunals rendered eight decisions across the two cases; the five most relevant to the final award are summarized below.

Decision on jurisdiction

The first decision was rendered in 2013 on jurisdiction. The tribunals found that they had jurisdiction ratione personae over Niko and BAPEX, under the JVA but not over Petrobangla, as it was not a party to the agreement (paras. 489–492). They declined jurisdiction over the Government of Bangladesh, which had approved the JVA without becoming a party to it and had designated BAPEX and Petrobangla as its agencies in the sense of Article 25(1) of the ICSID Convention (para. 9). The tribunals additionally found that they had jurisdiction ratione materiae (para. 162). The arbitration clause was interpreted to extend beyond strictly contractual issues to disputes arising from the execution and interpretation of the JVA (paras. 485–486).

Decision on exclusivity of the tribunal’s jurisdiction

In 2016, the tribunals rendered a decision confirming their sole and exclusive jurisdiction over all matters validly brought before them, including the validity of the JVA and the GPSA and Niko’s liability (para. 779). The basis was Article 26 of the ICSID Convention, which provides that when parties consent to arbitration, they also consent to the exclusion of any other remedy (para. 505). The tribunals ordered BAPEX and Petrobangla to take all necessary steps to terminate any domestic proceedings that conflicted with the decision on exclusivity (para. 779). The reasoning was that the state and all its organs are bound by the ICSID Convention by ratification and must give effect to the tribunals’ decisions on matters falling within their exclusive jurisdiction (paras. 23–498).

Decision on corruption claim

Three years later, in 2019, the tribunals rendered a decision on the claim of corruption, following the Canadian conviction of Niko’s Canadian parent company (“Niko Canada”) for bribing the Bangladesh Minister for Energy and Mineral Resources in 2005. Despite Niko Canada’s guilty plea, there was no proof to show that the act of corruption resulted in any influence over the procurement of the JVA and the GPSA. The tribunals concluded that, apart from the conduct underlying the Canadian conviction, no other acts of corruption were established, and that the JVA and the GPSA were not procured by corruption and remained valid and binding (para. 163).

Decision on liability

In a decision issued in 2020, the tribunals ruled on Niko’s liability regarding the two blowouts. Article 27 of the JVA provides that Niko must take “necessary measures” under “generally accepted standards of the international petroleum industry” (para. 277). For the first blowout, Niko was found liable, as it breached its “prudent operator” obligation, failing to ensure the operation’s safety (para. 267). Its design for the well was excessively risky, despite the availability of safe alternatives (para. 165). It did not adequately prepare its employees to handle the risks (para. 266). For the second blowout, the tribunals found that Niko adhered to its obligations as a “prudent operator” by engaging a qualified relief well specialist (para. 271). As such, Niko was not found liable for the second blowout.

Decision on heads of recoverable loss

In 2021, the tribunals rendered a decision on the compensation to which BAPEX was entitled. First, it was found that BAPEX was entitled to the value of gas lost from the blowouts, and to the extent recoverable, gas that escaped after the relief well was completed, together with, on the state’s behalf, the difference between the price payable under the GPSA and the higher prices paid to comparable gas producers for replacement gas (paras. 773–774). Second, the tribunals rejected BAPEX’s claim for the loss of production from gas remaining in the reservoir, holding that such loss was remote and therefore not recoverable. Third, the tribunals found that BAPEX was entitled to compensation on behalf of the state for the environmental loss and damage caused to the local population by the first blowout, to the extent that Niko had not already provided compensation (para. 776).

Liability for loss of gas

The final award deals with Niko’s liability for the loss of gas. Since it was found in a prior decision that Niko was liable for the first blowout, the tribunal only considered its liability for the loss of gas after the relief operations. As the second blowout resulted from the first relief operation and Niko is not liable for it, the tribunal held that it was also not responsible for the resulting increase in gas flow (para. 1060). The second relief operation substantially reduced the flow of gas; however, seepages continued at the surface. Niko claimed that BAPEX’s failure to approve its proposals for continuing production prevented measures that would have reduced the seepages. It also argued that BAPEX’s conditions for approval were unreasonable (para. 1061). The tribunal found that the conditions were indeed unreasonable and prevented mitigation operations (para. 1186). The tribunal therefore limited Niko’s liability to the quantity of gas that would have escaped before the additional wells proposed by Niko would have brought the seepages to an end (para. 74). Overall, the tribunal found that Niko’s liability for BAPEX’s and the state’s loss of gas amounted to USD 6,833,600 and USD 9,524,330, respectively (para. 3395).

Liability for environmental losses

The tribunal also examined Niko’s liability for environmental losses. BAPEX sought compensation for atmospheric pollution caused by the ejection of debris and the emission of greenhouse gases (GHGs) from the blowouts (para. 2360). Niko argued that these damages were indirect and that, as a non-Annex I party to the UNFCCC, Bangladesh was not required to reduce carbon emissions (paras. 2375–2386). The tribunal found that the GHG emissions from the first blowout did not directly cause harm to BAPEX or the state. However, Niko still had an obligation to repair the atmospheric damage. Reference is made in the award to the state’s obligation to mitigate the adverse effects of climate change under Article 3 of the UNFCCC. The state had a commitment under the UNFCCC to support action mitigating GHG emissions, and the tribunal held that restoring the damage caused by the emissions from the first blowout was an action in line with that commitment, which entitled BAPEX, on the state’s behalf, to claim the restoration costs from Niko (paras. 2612–2626). As reparation under this head, claimed by BAPEX on behalf of the state, the tribunal awarded the cost of restoring the atmospheric baseline by sequestering the emitted carbon through afforestation, calculated by reference to a 2022 World Bank report (paras. 100–101). The tribunal found that Niko’s liability for the atmospheric pollution amounted to USD 5,025,055 (para. 3395).

BAPEX also claimed other losses including damage to vegetation, loss of water and soil resources, and losses related to human health. The tribunal found that the damage and destruction had either been restored or the claims were already settled (paras. 2673 to 3118). Niko was only ordered to pay additional compensation for the consequences resulting in the reduction of quality of schooling and the suffering caused to the students, as well as the disruption, stress, and suffering caused by the first blowout (paras. 3218–3243), amounting to BDT 21,937,500 and BDT 28,125,000, respectively. BAPEX was ordered to distribute these amounts to the affected students and families (para. 3395).

Award

The tribunal confirmed the previous decisions. It further decided that Niko breached its obligations under the JVA causing the first blowout, and that it is liable for the loss of gas, GHG emissions, and the villagers’ losses relating to education and lifestyle. The tribunal ordered Niko to pay a total of USD 21,382,985 to BAPEX and the state, and BDT 50,062,500 to the villagers. All the sums awarded are subject to compound annual interest until full settlement. The interest accrued is at the following rates: 5% p.a. for Bangladesh Taka, LIBOR + 2% for U.S. dollars for 6 months until November 19, 2020, and thereafter 180-day average SOFR + 2%, and 180-day average CORRA + 2% for Canadian dollars. The start date of the interest is January 1, 2007, for sums awarded for gas loss, October 1, 2022, for amounts for sequestration of CO₂ and equivalent emissions, and January 1, 2006, for amounts awarded for the losses of education and lifestyle and the residual damage from the stress, suffering, and disruption (para. 3395).

Comments

This award is distinctive as it engages with international environmental law at length. It includes a detailed section on the fundamentals of climate change and a historical account of international climate governance. The tribunal traced the evolution of international environmental law from 2005 to 2025, taking into account both the scientific uncertainty of that period and the current consensus that rising temperatures are anthropogenic and linked to the fossil fuel industry (paras. 2391–2510). The award of compound interest can be understood as underscoring the importance of mitigation, in light of states’ climate change obligations. These features exemplify the public ramifications of a private venture and demonstrate that the international environmental law regime does not operate in a vacuum.

Note

The tribunal was composed of Michael E. Schneider (national of Germany, president of the tribunal), Professor Jan Paulsson (national of Sweden, France, and Bahrain, appointed by the claimant) and Professor Campbell McLachlan KC (national of New Zealand, appointed by the respondent).

Author

Aecaterini Loizidou is a Cypriot-qualified lawyer. She holds an LL.M. in international dispute settlement (MIDS) from the University of Geneva and the Geneva Graduate Institute, and an LL.B. in law from King’s College London.