In a significant policy shift, the government is poised to allow investments in the establishment of refineries and marketing of refined oil products, both for domestic consumption and export. A recent gazette notification has unlocked the previously restricted industry sector for private investment, albeit with certain preconditions that have evoked a mixed reaction among concerned stakeholders.
The draft policy states that annual capacity of a refinery has to be at least 1.50 million tonnes. Private refineries will have to sell a minimum of 60 per cent of the total fuel oil output---diesel, octane, petrol, jet fuel, furnace oil and by-products---to the state-owned Bangladesh Petroleum Corporation (BPC) at a government-determined price during the initial three years from starting operation. The remaining 40 per cent of the fuel oil can be sold through their own marketing network. The three-year gestation period over, they will be allowed to market up to half of their output for subsequent two years. After five years of operations, overall performance of the refiners will be reviewed to determine the quantity of oil products to be purchased by the BPC. An interested private enterprise must have a minimum annual turnover of Tk 50 billion and possess jetty facility to qualify for the big-budget venture. The private refineries can export refined output under their own arrangement on obtaining no-objection certificate (NOC) from the BPC, unless the corporation buys their products. Following the final approval of the refinery setup, a private entrepreneur is required to provide a bank guarantee of Tk 250 crore in favour of the BPC as security deposit before commencing commercial activities.
Currently, Bangladesh imports approximately 1.50 million metric tonnes of crude oils annually to be refined at the country's lone oil refinery, the Eastern Refinery Ltd (ERL), a subsidiary of the BPC. However, ERL can only meet 20 per cent of the country's overall demand. In addition, the BPC separately imports around 7.5 million tonnes of refined oil products including diesel, jet fuel, furnace oil, octane, and marine fuel. Considering the overall situation, along with fluctuating international prices and supply chain challenges, private refineries, together with the ERL, hold the promise of significantly increasing the availability of refined petroleum products while saving a substantial amount of foreign exchange.
Reactions from concerned quarters have primarily focused on the financial preconditions stipulated in the policy draft. Industry insiders have expressed concerns that the mandatory production capacity of 15 lakh tonnes per year will impose serious pressure on interested entrepreneurs. However, experts suggest that these stringent financial requirements may stem from protective and precautionary concerns and it is anticipated that these issues will be addressed before finalising the policy. What appears encouraging is the dismantling of public sector's monopoly over fuel oil, marking the opening up of market economy in the energy sector. However, caution must be exercised to prevent the emergence of a monopoly among major investors.
© 2024 - All Rights with The Financial Express
