Bangladesh pays Tk 2.45 billion penalty due to PDB’s mistake

Bangladesh had to pay a penalty of USD 20 million—equivalent to Tk 2.45 billion—due to a negligence of the Bangladesh Power Development Board (PDB), a state agency under the Ministry of Power, Energy, and Mineral Resources.

The mistake was that Bangladesh did not become a party to a case filed in 2000 at the International Chamber of Commerce (ICC) Arbitration Tribunal. Participating in the proceedings would have cost Bangladesh USD 60,000, which the PDB chose not to pay. As a result, a one-sided verdict was issued, and two decades later, Bangladesh ended up paying 333 times that amount.

On 19 May, the Finance Division of the Ministry of Finance notified the PDB that the amount would be loaned to them from the state treasury to pay US company Smith Cogeneration (Bangladesh) Private Limited—the sponsor of a 100 MW power plant in Haripur.

However, the PDB did not take the loan and instead paid the Tk 2.45 billion from its own funds on 23 May. The company, in return, withdrew all lawsuits against Bangladesh.

The monetary dispute also led to arrest warrants being issued in October 2024 in the US against Finance Adviser Salehuddin Ahmed and Bangladesh Bank Governor Ahsan H Mansur. To avoid complications, both sought refuge at the residence of the Bangladeshi ambassador in Washington.

Power Adviser Muhammad Fouzul Kabir Khan told Prothom Alo, “Due to the negligence of the lawyers and the then PDB board, we had to pay this huge amount. Not participating in the ICC arbitration was a massive mistake. The one-sided verdict went against Bangladesh.”

In October 1997, the then-Awami League government signed two contracts with Smith Cogeneration (Bangladesh) Private Limited, an affiliate of US-based Smith Cogeneration International, to set up a 100 MW private power plant in Haripur. One contract was signed with the PDB on 14 October, and a Power Purchase Agreement (PPA) with the government was signed on 16 October.

Commercial operation was to begin on 15 August, 1998. Failure to do so would incur USD 10,000 in penalties per day, with a two-month grace period. The company neither built the plant nor began construction and later requested an additional 6 months and 20 days. The government rejected the request and canceled both the PPA and land lease on 15 February, 1999. PDB also confiscated the USD 1.5 million performance guarantee.

These events were cited in a proposal at the Economic Affairs Committee meeting on 29 April, 2024, recommending the USD 20 million settlement with the US company, presented by Power Secretary Farzana Mamataj. No one was held accountable in the proposal, though a recent Finance Division letter instructed the Power Division to identify those responsible.
When asked on 15 May why those responsible weren't held accountable, the Power Secretary declined to comment.

The Power Secretary’s proposal stated that Smith Cogeneration filed arbitration-related lawsuits in 2000 in two courts in Bangladesh—both were dismissed. The company also sent a notice to the PDB to initiate ICC arbitration against the PPA cancellation and forfeiture of the performance guarantee. The PDB responded by nominating lawyer Ajmalul Hossain QC as arbitrator.

However, the ICC tribunal required a fee of USD 950,000, to be equally shared by both sides. The PDB’s share of the initial advance would have been USD 60,000. The PDB board then decided not to pay, following the advice of its legal panel, which argued that Bangladesh's arbitration law was enacted in 2001 and prior ICC rulings would not apply domestically. They advised the PDB not to be party in the case.

The ICC delivered a one-sided verdict on 30 October, 2003, directing PDB to pay USD 13.06 million with 4 per cent annual interest to Smith Cogeneration.

To enforce the ICC judgment, Smith Cogeneration filed six lawsuits in US District Court for the District of Columbia, US District Court for the Northern District of New York, Supreme Court of New York, Court of Session in Edinburgh, Scotland, District Court of Baden in Switzerland and a court in Dhaka.

The District Court of Columbia ruled in favour of Smith Cogeneration in 2007. On 19 May, 2024, the court issued a final revised ruling ordering PDB to pay USD 31.71 million. The company’s legal firm, Duane Morris LLP, was notified, but enforcement remained stalled.

When contacted on 28 May, PDB Chairman Md Rezaul Karim declined to comment.

In October 2024, a delegation led by Finance Adviser Salehuddin Ahmed and Governor Ahsan H Mansur attended the IMF and World Bank annual meetings in Washington, DC. Learning of their presence, Smith Cogeneration filed another case in the District Court for DC, seeking their depositions. Though they had diplomatic immunity and were not directly involved with the PDB, the court issued arrest warrants on 25 October, 2024.

To avoid arrest, both took refuge at the ambassador’s official residence in Maryland, having stayed earlier at Embassy Suites Hotel in Washington, DC. They traveled in an embassy vehicle to the residence.

The Bangladeshi Embassy had hired US law firm Foley Hoag LLP on 18 October to represent Bangladesh. The firm filed an appeal, leading the court to suspend the warrants and schedule a hearing for 28 October. Foley Hoag proposed out-of-court mediation, which was accepted, saving both officials from arrest.

Salehuddin Ahmed told Prothom Alo on 30 June, “The matter has been settled. But the PDB’s mistake was very serious.”

Based on the court ruling, Power Adviser Fouzul Kabir Khan initiated action. On 4 November, 2024, Chief Adviser Prof Muhammad Yunus approved a policy-level settlement. Five online meetings were held between Smith Cogeneration’s mediator, officials of power division and PDB, and Attorney General Md Asaduzzaman.

Initially, Bangladesh proposed settling the matter by returning the confiscated USD 1.5 million. The company rejected it and demanded USD 31.71 million plus another USD 18 million in legal costs.

Bangladesh counter-offered USD 1.5 million and investment opportunity in country’s power sector. Smith Cogeneration did not agree. Later Bangladesh offered Smith Cogeneration a settlement at USD 10 million. They responded with a new offer: either USD 25 million one-time settlement or USD 24 million plus future investment opportunities in two power projects.

Attorney General Asaduzzaman, when contacted on 26 May, declined to comment. However, sources confirmed that a final settlement was reached at USD 20 million, with the government agreeing to pay. This was pre-approved by the Chief Adviser and Finance Adviser on 18 February. The agreement was signed on 28 April.

Power division said outside this amount, Bangladesh also paid Foley Hoag LLP USD 396,000 in legal fees.

Former PDB chairmen involved at the time have all passed away. Nuruddin Mahmud Kamal (1996–99) died in 2022, Kamrul Islam Siddique (1999–2000) in 2008, and Brig Gen MA Malek (2000–02) in 2016.

Dr Iftekharuzzaman, Executive Director of Transparency International Bangladesh (TIB), told Prothom Alo, “It seems Bangladesh might have won if it had joined the arbitration, as the US company failed to meet the deadline. Instead, we ended up paying a huge fine and suffered reputational damage.”

He added that if any of those responsible are still alive, they must be held accountable. Even PDB as an institution should face consequences. The interim government must investigate the matter as advised by the Finance Division.