BPDB signs deal with Santos for buying gas at high rate

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M Azizur Rahman
State-owned Bangladesh Power Development Board (BPDB) has inked a deal with Australian Santos Wednesday to purchase gas at US$ 4.50 (Tk 368) per unit (1,000 cubic feet), around four-times higher than its current rate.
The BPDB is now paying $ 1.2 per unit to state-owned gas distribution companies to generate electricity in gas-fired power plants.
Although the tariff to purchase natural gas from Santos is higher, it would be lower than the cost of generating electricity in oil-fired power plants, said a BPDB official.
The daily contract quantity (DCQ) has been set at 20 million cubic feet per day (mmcfd), but BPDB will be able to purchase 120 per cent higher than the limit subject to availability of gas
BPDB must have to purchase at least 60 per cent of the DCQ, Santos Bangladesh Vice President Siraj Uddowlah said elaborating the terms of the contract.
The BPDB will be able to adjust the quantity of gas purchase in line with the DCQ within 30 days, the Santos official said.
The BPDB will have to inform Santos by 2 pm every day for its daily gas requirement in the next day, he said Santos will supply natural gas for 24 hours a day, from 8 am to 8 am, unless a 'force majure' emerges, the contract spells out.
The BPDB will purchase Sangu-11 gas to run a 150-MW power plant at Sikalbaha in port city Chittagong.
The BPDB has agreed to purchase Sangu-11 gas at a rate set by Santos as the
baseline price, up 55 per cent from a previous rate of $2.90 per unit from the older Sangu well.
It has also agreed to pay for transport charges for the gas from the offshore field to BPDB power plants.
It will have to clear monthly dues of gas purchase, within 55 days with a grace period of 10 days, the Santos official said.
BPDB will make bank guarantee against its gas purchase, he added.
If the BPDB fails to pay Santos within the given timeframe, Santos will be able to encash bank guarantee, which will be equivalent to 30 days of payment, the official added.
It will be relieved of making payment if the power plant turns non-operational due to technical fault.
For any planned shut-down of the power plant or the gas producing well both the parties will have to inform each other before, the agreement spells out.
Separately Santos has inked a Gas Transportation Agreement (GTA) with state-owned Karnaphuli Gas Distribution Company Ltd (KGDCL) Wednesday evening.
As per the GTA the KGDCL, a subsidiary of state-owned Petrobangla, is obliged to provide the BPDB with the same quantity of gas it will take from Chilimpur, the off-take point of Sangu-11 gas.
Both the agreements are of two-year tenure subject to renewal on mutual agreements.
Santos Bangladesh president John Chambers inked the deals with the BPDB and the KGDCL on behalf of Santos, while BPDB Secretary Md Azizul Islam inked the deal on behalf of the BPDB and KGDCL Secretary Chowdhury Ahsan Habib inked the deal on behalf of his company.
These agreements would have to have seal of approval from the cabinet committee on government purchase for its formal going.
But as per the negotiation, Santos will be able to supply gas immediately after signing the deal depending on the readiness of the BPDB to take gas for running the power plant.
"We are pleased to be able to purchase offshore Sangu-11 gas at a fixed flat rate at $4.50/Mcf," BPDB Chairman ASM Alamgir Kabir said after signing the deal.
This is first time in Bangladesh that an international oil company has been selling natural gas to end-user at market price after wrapping up months of negotiation.
Usually they sell gas to state-owned Petrobangla at a rate fixed in the production-sharing contract (PSC), which then sells it to state-owned gas distribution companies.
Under its PSC, Santos had to give Petrobangla first option to buy its gas at market prices.
As Petrobangla declined, it offered the gas to the BPDB, as per the PSC.
Santos found commercially viable gas reserves in the Sangu-11 well which was drilled in block 16 in the Bay of Bengal in mid-February last.
"Santos has been ready to supply new gas from Sangu-11 since late March 2012 on completion of a three-well drilling programme in the Bay," Chambers said.
Before initiating a $128 million three-well drilling programme in block 16 in October last year, Santos had received expressions of interest in July from over a dozen large privately owned companies in Chittagong that were willing to buy gas at market prices due to a growing gas shortage in the country.
Santos will shut the depleted Sangu gas field with the start of gas supply from new Sangu-11.
The field is currently producing around 8.3 mmcfd, just 4.0 per cent of its peak production capacity of 220 mmcfd, which it achieved in 2006.
The Australian firm had been incurring losses in operating the Sangu field over the past year as gas output had fallen sharply, a company official said previously.