Unlike in case of other fossil fuels, Bangladesh is almost entirely dependent on private sector to feed a growing demand for liquefied petroleum gas (LPG) from households, automotives, commercial consumers and industries. The government does not have to pay much heed to arranging LPG for local consumption as private businesses import around 98 per cent of domestic needs at their own cost. Only around 2.0 per cent of the alternative fuel is arranged by state-owned LP Gas Ltd, a wholly owned subsidiary of Bangladesh Petroleum Corporation (BPC).
But, like other fossil-fuel imports by state-run entities, including coal, petroleum oils and liquefied natural gas (LNG), the private-sector firms are also currently struggling to import the fuel from the international market due to severe US dollar crisis. Many local commercial banks are now showing reluctance in timely opening of letter of credit for LPG import in the private sector, which results in delay in supply of the fuel to end-users spread down to far-flung corners of the country.
Apart from paying high for managing dollars to import LPG, the private sector has also to count demurrage charges from vessels for keeping them in wait exceeding the usual unloading period. This dislocation might cause shortage of LPG for domestic marketing, if it continues for long, market insiders fear.
They say most of the LPG companies usually purchase the petroleum gas for whole year under term agreements with global suppliers. Under term agreement, LPG companies have to purchase a fixed monthly quantity every month. But, due to delays in transmission of LCs, several companies are failing to import fixed monthly quantity of LPG on a regular basis and that particular company has to import the fuel in following month.
Moreover, if the Saudi Aramco contract price (CP) decreases in any particular month, the private companies have to import LPG at the previous month's CP rate but have to sell at current month's rate, which is calculated on current month's CP by Bangladesh Energy Regulatory Commission (BERC).
Due to delayed LC payment, many global LPG suppliers are now averse to fuel supply to Bangladesh market.
Selling LPG cylinders to steel re-rolling mills and 'cross-filling' of LPG in cylinders are among other major challenges the LPG sector is navigating. Private sector usually sells LPG cylinders to end-users at lower than the manufacturing costs as incentives to grab the market share. But selling the LPG cylinders by a certain quarter to steel manufacturers is a growing threat to the sector, traders said. A section of unscrupulous businessmen are involved in the cross-filling of LPG in cylinders through which they tamper with the volume of LPG in cylinders after receiving the fuel from the companies.
Some 58 privately owned companies now have licences to import and bottle LPG and 28 among them are now in operation. The private sector has so far invested around Tk 300 billion in LPG sector, according to the LPG Operators Association of Bangladesh (LOAB). The private LPG sector provides around Tk 6.50 billion as value-added tax (VAT) and another Tk 2.0 billion as advance income tax (AIT) annually to government exchequer - the National Board of Revenue (NBR). The LPG operators have so far provided around 400,000 employments, and some 4.0 million people, including their families, are directly benefitted.
Meanwhile, LPG consumption in Bangladesh has almost trebled over the past six years riding on mounting consumption in households, commercial entities, vehicles and industries. The country currently consumes around 1.50 million tonnes of LPG annually, according to LOAB. The country consumed around 650,000mt LPG in 2017 in a rapid rise from around 400,000 mts during 2016, and 250,000 mt during 2015, said sources.
Bangladesh's LPG consumption has grown rapidly since 2016 mainly due to favourable government policy, duty waivers on import of LPG and its necessary machinery. "Government strategy to popularize LPG consumption across the country instead of piped natural gas to cope with fast depletion of local natural gas reserves is also attracting local and international firms to come and invest in LPG sector heavily," says one industry insider.
Another push comes from a crackdown on natural-gas pilferage. Government's continued drive against illegal piped-gas connections, especially to households and commercial units, is also propping up LPG use in Bangladesh. The LPG firms are also increasing their individual storage capacity to ramp up LPG business.
Despite the LPG business being on the up-and-up, consumption of the gas in Bangladesh is much lower compared to that in neighbouring India. Per-capita LPG consumption in Bangladesh is around 8.0 kilogram, which is 19kg in India.
Bangladesh market now consists of 40 million LPG cylinders and some 5000 dealers, and 60,000 retail sellers involved in the business.
Retail-level LPG price has been fixed by Bangladesh Energy Regulatory Commission (BERC) since April 2021 following a court verdict over a case of the Consumers Association of Bangladesh (CAB). The commission has devised a formula through public hearings based on which it fixes LPG prices in the first week of every month for selling by the distributors in that particular month, which, however, is not reflected in the market.
The LOAB, however, has hailed the BERC-set pricing formula as 'faulty,' saying that the pricing formula did not reflect the proper cost and assumed 'improper' profit of private operators. There were discrepancies while calculating costs in some five to six cost components of the operators, which include freight, returns on equity, margin of distributors and retailers, in the pricing formula. For such lacunae, the LPG operators "are paying the price", it noted.
The association, however, welcomed the commission's consideration of the Saudi Aramco CP as the benchmark for fixing LPG prices for the domestic market.
Private operators, however, now see dollar crunch and commercial banks' unwillingness to open LC for LPG import as the main challenges.
"The government, especially the central bank, should take initiative for timely transmission of LCs by allotting the greenback to come out of the crisis," says one of the market insiders.
Payments against LPG-import LCs should be disbursed within due date to avoid future uncertainty of delivery, they said. The commercial banks should ensure long-term loan at minimum interest rate to LPG companies to ensure smooth business of LPG sector and maintain growth.
Increased LPG consumption means lesser burden of importing expensive fossil fuels like petrol, octane and LNG by the government from international market, they noted.
© 2024 - All Rights with The Financial Express
