NO sooner had energy-starved Bangladesh told prospectors that it might have huge oil and gas deposits than foreign firms were falling over themselves to try to exploit the potential.

Among them is Scottish-based Cairn Energy, which has already discovered a huge gas deposit in the Bay of Bengal and is set to explore further.

Other leading companies expected to participate in a bidding round next month include British Gas, Shell, Tullow of Ireland and the US firms Exxon, Mobil, Union Texas Petroleum Holdings.

Despite this interest, some energy officials say the country still lacks proper policy guidelines.

Bangladesh has been divided into 23 blocks for oil and gas exploration under production-sharing contracts (PSC), and the Government will invite international bids for 15 blocks, including three offshore in the Bay of Bengal.

The bidding will be followed by ``promotional seminars'' in London and Houston in February, energy ministry officials said.

Energy experts believe there are potentially huge hydrocarbon deposits which a lack of technology and funds prevent Bangladesh from exploiting.

``We are receiving a huge response from foreign oil companies following the success of Cairn in the offshore (Bay of Bengal),'' one official said.

Cairn has conducted seismic surveys on a 1000 sq km (386 sq mile) area in the Bay and drilled two wells in Sangu-1 block. A test run found a flow of 80 million cubic feet of gas a day.

The Edinburgh-based exploration company signed a production-sharing contract for two blocks in the Bay of Bengal and found the first offshore gas reserves in January. It has spent $23m so far.

Cairn has offered a 25% stake in Sangu to Brown & Root Energy Services, a subsidiary of the US industrial group Halliburton.

Officials said Cairn was planning to develop the field, construct a 40-km (25-mile) pipeline and drill three appraisal wells, maybe investing another $150m.

United Meridian Corp of the United States has been negotiating with the government to explore for oil in the Southeastern hill tracts - an area deserted by Shell in the 1980s after the firm failed to find any.

``Meridian is hopeful of striking oil in the area after analysing existing data,'' one official said.

And Rexwood-Okland International, a US joint venture, is close to signing a formal production-sharing agreement for two offshore blocks.

Occidental, which struck a deal in January this year, is expected to drill its first exploration well in the North-eastern Sylhet district, where Bangladesh's state-owned Petrobangla has found small quantities of oil.

Occidental is negotiating a 50-50 joint venture with Unocal to drill for gas in Bangladesh.

The two companies are expected to spend about $350m on gas exploration over two to three years.

Under Bangladesh's new energy policy, oil companies are not required to pay royalty, signature bonus or corporate tax. There is no duty on importing machinery and investors are allowed full repatriation of profits.

But while this opens up the sector to private investment, experts say much remains to be done before overseas funds start flooding in.

Although the new policy offers a broader package of incentives, it lacks procedural guidelines such as clarification whether contracts will be awarded on a first-come-first-served basis.

``There are no clear guidelines in the policy. It only envisaged private sector participation in the petroleum sector,'' said one senior energy official.

``Any interest by foreign investors may be frustrated by procedural delay in the absence of methodology of selection and award of particular ventures,'' he added.

Other government officials see a bright future.

``I expect the overseas investment in oil and gas may be more than a billion dollars over the next couple of years,'' Towfiq-e-Elahi Chowdhury, executive chairman of the Board of Investment, told Reuters.

Gas reserves could prove much greater than estimates of 10.2 trillion cubic feet, he added.

Chowdhury said US investors showed ``tremendous'' interest in Bangladesh's energy sector when Prime Minister Sheikh Hasina addressed a forum of businessmen in New York in October. - Reuter.