Liquefied petroleum gas (LPG) industry in Bangladesh has navigated many ups and downs in the last decade and gradually positioned itself as an alternative to natural gas. In 2022 Bangladesh imported about 1.4 million metric tonnes of LPG at its height. According to many experts, the LPG market is poised to grow up to 3.0 million MTs by 2030. However, since the beginning of the Russia-Ukraine war and global recession, the country's LPG demand has been sluggish and current prediction shows that 2023 importation might be even lesser than that in 2022.
So far, the government has given licence to 58 companies to operate LPG business. Among them, only 28 are in operation. In 2022, the government received Tk 6.5 billion as VAT and another Tk 2.0 billion as income tax from this sector.
Bangladesh as well as the world now is facing unforeseen challenges after the Covid era - high inflation, lower forex reserves, power and fuel crisis, trade deficit etc. All these are hurdles for the LPG businesses to grow. The solution is beyond the reach of the LPG companies or even the state in a short term. But there are factors like 'policy support' which can be developed and implemented by the government and stakeholders for the LPG business to grow safely and sustainably.
There are already some policies in Bangladesh to manage and control the LPG industry. While these policies cover a vast area, there are some important drawbacks that the overall system possesses. Policy support is needed in particular to address these loopholes, as mentioned briefly below:
Approval burden: The existing policy framework requires all the LPG operators, distributors, dealers and even users to get a good number of approvals from different government bodies. In many cases, the same set of documentations are required to be submitted to get approved. These are time-consuming and also repetitive in nature. As a result, only a few LPG businessmen have the complete set of approvals whereas the vast majority of LPG stakeholders are out of the approval network. Therefore, in case of any incident or even for any kind of regulatory purpose, it is very difficult to enforce law.
Government and investors in this sector must sit together and make things simple so that the whole LPG channel can be brought under the network. An appropriate digital system can help a lot.
Lack of surveillance: Even though government has currently ample set of rules and regulations, the relevant government bodies do not have enough skilled personnel to continue regular surveillance. As a result, many an LPG businessman is freely running their businesses without any appropriate seal of approval. Mostly these are LPG distributors and dealers as well as warehouse owners. These businesses usually do not have appropriate firefighting equipment. They also do not have proper storage location maintaining adequate ventilation or proper safety distance.
The government should bring the LPG Operators Association of Bangladesh (LOAB) and ensure all their channel partners maintain the requisite permissions and approvals. Also, a joint surveillance can be developed before the government will have enough manpower to cover the whole country. The government should also facilitate capacity enhancement of the implementing agencies.
Lack of safety culture: There exists almost no appropriate regular training facility for the LPG businessmen in this country. Few of the LPG operators have the safety and training covered for their staffs only. This leads a way of less-educated LPG businessmen in the channel. This is dangerous for a densely populated country which is growing rapidly. All the channel partners, their employees must possess sufficient knowledge on the product itself (LPG), it's properties, how to safely handle LPG, firefighting trainings and so.
Development of an Occupational Health and Safety (OHS) System for LPG sector is now a requirement for the country. OHS is a multidisciplinary field concerned with the safety, health, and welfare of people at work. In addition to OHS, an Operations Management System (OMS) is also imperative to be followed by all LPG operators.
LPG operators should be given more responsibility to train their channel partners on a regular basis. Government should encourage and even think of a mode of appreciation to the deserving operators, distributors and dealers to maintain safety at workplace.
Economic slowdown and dollar crisis: LPG business is now a billion-dollar industry in Bangladesh and yet none of the policy or system has any guideline to protect this industry during crisis period. This is a vivid truth now that around 6-7 companies cannot import their basic raw material which is liquefied petroleum gas. The others who are able to import are also tremendously suffering for causes beyond their control.
The overall repercussion of this 'stop' in business is widespread, such as (a) companies cannot meet their monthly fixed costs. ( b) repeatedly failing to pay back the creditors, which is making the banks vulnerable, not to mention already many news reports on several banks in the newspapers (c) gradually these businesses moving towards shutdown (d) the forward channels like dealers/distributors are suffering in business for lack of product supply (e) government directly losing out on VAT and tax collection from business (f) consumers are suffering as they have to buy substitutes at high prices, and finally (g) country's energy security is at risk.
The investors in this sector need particular assistance from government, be it in the form of policy or through any internal legislative system. Considering LPG as an alternative fuel and vital energy source, the government should take the following initiatives:
The government and the central bank should take steps for timely transmission of LC by allotting US dollar. Only a sum of USD100 million per month is enough to run the country's LPG business without much hassle.
Exchange rate of the USD should be carefully controlled by the central bank for LPG Import. In the end, LPG companies should not incur any loss for exchange-rate fluctuations. Also, BERC should accept the highest real exchange rate from the market data to calculate the MRP or maximum retail price.
Payments on LPG-import LC should be released within due date to avoid uncertainty over delivery. Currently, many suppliers are getting their LC payment much later than the due date - this will deter international suppliers and ultimately price shall go up. This will unnecessarily cost the country higher.
Banks should ensure long-term loans with minimum interest rate to LPG companies, particularly the existing ones.
The BERC-declared MRP should be more convenient to the LPG investors to make sure supply side is taken care of. Currently, BERC price cannot be implemented in most parts of the country because the component of price calculation is not close to real pricing.
Government must make empty cylinder- price declaration via BERC. Currently, empty cylinders are being sold on the market at extremely low price which is one of the chief contributors to LPG companies' losses. For incurring more losses, LPG companies cannot make more profit by selling LP gas as the price is being fixed.
Poor policy - a constraint on safety and growth: The consequences of poor policy are far-stretched. Local and foreign investors are in a dilemma - as many of them invested big amounts in Bangladesh when there were no price setting and government opened up the LPG business to private sector. Market competition decided the price and at that time fair pricing could be achieved.
Another severe consequence of BERC pricing is that the LPG companies now find no incentives to invest on 'safety'. When the financial statement shows loss or very marginal profit, operators tend to reduce costs as much as possible, such as lesser and lesser emphasis on product quality, safety, branding etc. The whole country shall be at a risk if 'safety' cannot be prioritized and nurtured as a culture in the system.
And finally, the real burden would come on the banking sector - as almost all LPG operators have been relying heavily on bank finance. So, the collapse of any LPG operator shall also bring many banks under extreme pressure. The energy security of the country will be also at stake if LPG cannot be supplied adequately when all of us know the depleting natural gas already creating a noise on the market.
To conclude, it is worth noting that globally LPG market size in volume is around 320 million tonnes, as of 2022, and the growth rate is to be around 4.0 per cent until 2035. This means the import price might not be coming down in the future. It is important that as a country we have to arrange import of LPG professionally, at a reduced price, by attaining supply-chain efficiency, optimum storage management, taking advantage of CP or contract-price fluctuations and finally through local and foreign synergy. Bangladesh, therefore, needs to prepare itself smartly through its policy and procedures.
Government must prioritize LPG sector and instruct banks and financial institutions for support, be that in the form of LC opening and settling or extending long-term credits. Also the government can jointly hold discussion with BERC, LOAB, financial Institutions and relevant stakeholders to remove the loopholes and all business barriers.
The writer is an LPG professional with 23 years of local & global experiences in leading LPG terminals.
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