Bangladesh to clear energy bills ahead of elections, revamps upstream contracts

According to State Minister for the Energy and Mineral Resources Division Nasrul Hamid, Bangladesh has decided to clear outstanding payments to LNG suppliers, international oil companies (IOCs), and local and foreign power plant owners. Starting from July, the country plans to pay approximately $960 million per month to settle these debts.

To achieve this, the government will be making weekly payments of around $240 million. Out of this amount, $160 million will be allocated to the power division under the Ministry of Power, Energy, and Mineral Resources (MPEMR) to clear debts with different power plant owners. The remaining $80 million will be paid to the Energy and Mineral Resources Division (EMRD) to settle payments owed to LNG suppliers and IOCs.
The decision was made in response to a recent directive from Prime Minister Sheikh Hasina, who also holds the position of Minister in charge at the Ministry of Power, Energy, and Mineral Resources, as mentioned by Hamid.

Zanendra Nath Sarker, Chairman of state-run Petrobangla, had recently sent letters to the MPEMR emphasizing the importance of clearing debt to LNG suppliers, both long-term and spot, as well as International Oil Companies (IOCs), to ensure a smooth supply of natural gas.

The Power Division of MPEMR had also presented a request for approximately $5.921 billion to ensure uninterrupted electricity supply for the fiscal year 2023-24, commencing in July 2023.

Despite facing financial challenges, Bangladesh aims to settle its energy bills with the support of global lenders to prevent disruptions before the upcoming general election, scheduled for January 2024. To achieve this, Petrobangla has initiated discussions to borrow approximately $500 million from the Islamic Trade Finance Corporation, a member of the Islamic Development Bank.

As of June, the government\’s arrears include approximately $2.4 billion owed to private independent power producers (IPPs), $475 million for electricity imports from India, $350 million to companies such as Chevron and KrisEnergy for domestic gas, and $320 million to LNG suppliers, including contracted suppliers Qatargas and OQ Trading, as well as spot suppliers, according to a senior Petrobangla official. These companies have issued warnings stating that fuel supply may be halted, or security guarantees with banks could be forfeited.

This decision paves the way for launching offshore bidding rounds for hydrocarbon exploration in sovereign waters. The new model production sharing contract is designed to attract investment from International Oil Companies (IOCs) for future upstream auctions. It employs a profit-sharing formula instead of the previous production-based formula, which is expected to appeal to foreign investors.

Under the new contracts, Petrobangla would purchase natural gas from foreign exploration contractors at 10% of three months\’ average Brent crude price without a cap, equivalent to more than three times the current price of around $2.75/MMBtu at a Brent crude price of around $83/b. This new model production sharing contract links the hydrocarbon price with the same benchmark used to buy LNG without capping the price. Previously, Bangladesh received a portion of the gas production as \”profit gas,\” while the remaining gas was purchased at the contracted value.

As Bangladesh moves forward with its offshore and onshore exploration blocks, it aims to attract more foreign investments to the country\’s hydrocarbon sector and enhance its energy security.

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