Sadly, this is what it has come down to. With the ever-shrinking foreign reserve comes the problem energy experts in the country had been warning about for more than a decade, which policymakers dismissed off-handed. According to a report published in this newspaper, the worst-case scenario is slowly unfolding: "State energy-agency Petrobangla moves to borrow around US$500 million from the International Islamic Trade Finance Corporation (ITFC) at high interest to cover huge LNG-import bills amid forex crunch." This is supported by the news published on the ITFC website on May 28 titled, 'ITFC inks $1.4bn Financing Plan with Govt. of Bangladesh for Energy Security'. There it is stated that the Bangladesh government has signed an annual financing plan with ITFC at its headquarter Jeddah whereby this financial package will help facilitate the import of petroleum products by Bangladesh Petroleum Corporation (BPC) over the period July 2023 to June 2024.
Now that the country is squarely in the red in its efforts to balance the books as far as import is concerned, it is increasingly becoming clear that the liquefied natural gas (LNG) experiment is a bust for Bangladesh from an affordability point of view. The foreign loan that is being talked about will be based on secured overnight financing rate (SOFR) plus 2.0 per cent, or about 7.06 per cent in total. Energy planners are up a gum tree since LNG suppliers and international oil companies (like Chevron) have been pressing the government to pay off unpaid bills for some time now.
Both France's Total Energies and Guvnor Singapore issued notices to Petrobangla back in July to clear dues to the tune of $113 million for LNG bought in the Spot market. A failure to pay these dues would result in forfeiture of monetary guarantees with the central bank. Naturally, such a scenario is unthinkable for the State because that would signal to foreign LNG suppliers that Bangladesh is a country that cannot honour its international payments. Petrobangla is also in the soup due to its failure to pay long-term LNG suppliers, i.e., Qatargas and Oman Trading International (OTI) for LNG supplies procured. Reportedly, Petrobangla owes Qatargas $150 million and OTI $80 million. Every time State energy companies miss a regular payment; the government ends up paying LIBOR + 1.0-1.5 per cent on gas bills.
Despite pleas from the state agencies and the concerned ministry, the central bank has not been forthcoming to provide dollars to clear invoices. One can understand why. The IMF loan package availed by the government stipulates that foreign exchange reserves cannot go below a certain threshold. Pointing the finger at the Russo-Ukrainian conflict is going to do little to solve the problem of paying for expensive imported fossil fuels.
For over a decade, the country's energy planners went overboard building plants to generate more and more power, while neglecting to ensure where the energy needed to fire up these power plants would come from. The last decade was spent building expensive import-centric energy infrastructure and positioning these power plants closer to the coast because it was imagined (erroneously) that there would always be robust economic growth in the country. That the economy would continue to grow at more than 6.0 per cent per annum and the imaginary contracts for long-term sourcing of coal would all fall in place when the power plants came online.
With all the focus on LNG and imported coal, successive annual development plans were made with little prioritisation on exploratory drilling (onshore), abandonment of proven domestic coal reserve extraction and lastly, sitting on an outdated model of production sharing contract (PSC) for the offshore gas fields. The country's energy planners are collectively responsible for not doing the multi-client survey and remodelling the PSC in time. Unfortunately, policymakers in this country seem to be suffering from the notion that Bangladesh sits at the centre of the universe and foreign companies are dying to come here for business.
No corrective measures were taken when the country's energy-import bills were getting out of control. Despite having ample information about probable natural gas reserves and known coal deposits in the country, the decision to go import-only has resulted in this no-win situation today. The amount of $1.4 billion will take care of energy import bills for the next 12 months. The national exchequer will have to pay that principal amount back plus 7.0 per cent. What will happen if the war in Europe lasts beyond 2025? What will happen if demand for RMG falls and export earning goes down further. It is time to refocus attention to domestic fossil-fuel development. The next few years will be extremely painful financially for the country and all stakeholders because of past mistakes. However, not all is lost. Ample data exist about gas wells in areas like Rashidpur where, if exploration is done in earnest, natural gas may be found and incremental pockets of gas can be added to the national grid. This is the best case scenario for the country at present.
mansur.thefinancialexpress@gmail.com
© 2025 - All Rights with The Financial Express
