The state-run Bangladesh Petroleum Corporation (BPC) fears a big slump in business of its subsidiary fuel distribution companies and loss of the government revenue, if the oil-fired power plants of private sector start importing petroleum independently, a top government official said.
The ministry of power, energy and mineral resources (MPEMR) in a meeting Sunday decided in principle to allow the private sector to import furnace oil independently as per their requirement to run their power plants.
The government will necessarily amend the Bangladesh Petroleum Act 1974, the Bangladesh Petroleum Ordinance 1976 and the Bangladesh Petroleum Rules 1976 to allow independent import of furnace oil by privately-owned power plants.
Currently, BPC imports and supplies the required quantity of fuel to almost all these power plants for electricity generation. The state-run corporation also feared that its new fuel storage tanks will remain vacant, if the power plants import fuel themselves.
The 'robust' business of BPC's subsidiary fuel distribution companies -- Meghna Petroleum Ltd, Jamuna Oil Company Ltd, and Padma Oil Company Ltd -- will witness a sharp slump, BPC officials feared.
BPC provided around Tk 8.44 billion to the public exchequer as VAT in the last fiscal year (FY), 2012-13, against import of around 1.20 million tonnes of furnace oil, they said.
Under the existing regulations, only BPC has the authority to import any sort of petroleum product independently in line with the country's requirement.
The privately-owned power plants can, however, import furnace oil after obtaining no objection certificate (NoC) from BPC on annual basis.
If the government amends the related regulations, the private sector importers will not require obtaining NoC from the corporation to import furnace oil.
Two state-owned entities -- BPC and Bangladesh Power Development Board (BPDB) -- are at loggerheads over allowing private firms to import furnace oil.
BPDB is backing the oil-fired power plants' demands and arguing for allowing them to import furnace oil independently.
BPDB, the lone buyer of electricity from power plants, is also backing the private sector's demand for cancelling prior-permission requirement from BPC for furnace oil import.
However, BPC is opposing BPDB's opinions and arguing for keeping the furnace oil importing authority with the corporation.
BPC is arguing that it has been supplying all types of petroleum products, including furnace oil, to different power plants over the past couple of years without any hassle.
It has also been depositing revenue to the public exchequer against petroleum product import as value added tax (VAT) and customs duty.
The corporation has also built necessary infrastructure, like - construction of new oil tankers and necessary transportation, to ensure smooth supply of the petroleum products.
Both the state-run entities have recently submitted separate position papers on the issue to the ministry.
In its letter BPDB has argued that the cost of furnace oil, to be supplied by private sector, will be less compared to that of BPC.
It has shown that the cost of one litre BPC-supplied furnace oil is Tk 60.95, while it will be Tk 54.79, if supplied by the private sector.
BPDB has calculated the price of furnace oil, to be supplied by private sector, after deducting 9.0 per cent service charge from the original free on board (FOB) prices of furnace oil, freight charges, insurance, handling commission, port duties, inland transportation cost and storage charge. It also deducted VAT from the cost, as private sector has been exempted from paying VAT against import of furnace oil, said officials.
A senior BPC official said the corporation has to pay Tk 6.50 per litre as VAT to the public exchequer against furnace oil import.
Besides, the corporation does not get any service charge against FOB prices of furnace oil, freight charges, insurance, handling commission, port duties, inland transportation costs and storage charge.
If BPC gets exemption from paying VAT and gets 9.0 per cent service charge like that of private sector, its furnace oil import cost would have been lower than the private sector.
The government launched a drive to increase oil-based power generation in mid-2010 amid fast-depleting natural gas resources.
Currently 38 oil-fired power plants are operational across the country in both public and private sector. Some 1.0 million tonnes of furnace oil is required in privately-owned oil-fired power plants every year.
