Gas distributor gets lavish on borrowed money, receives PC rebuff

A gas-pipeline project is spurned by government planners for a lavish estimation of expenditures, including a fat consultancy cost, to be funded with local and foreign loans, insiders said Friday.

Titas Gas Transmission and Distribution Company PLC proposed to spend Tk 3.085 billion for consultancy service alone out of the Tk 81.61-billion pipeline-installation project, they said, only to be spurned by the Planning Commission (PC).

The state-run energy company also earmarked a massive Tk 32.187 billion worth of funds for road-restoration works which the PC noted as a "bloated cost", officials concerned told The Financial Express.

"The Commission has denied approval for the gas-pipeline project as Titas Gas has undertaken the scheme with some unnecessary expenditures taking huge amount of loans from internal and external sources," said officials involved with the approval process.

The gas-supply company has also proposed some other costs that are higher than similar kind of ongoing projects, he added.

Raising question on the necessity of undertaking the gas-pipeline-installation project on borrowed money from costly loans amid the country's present economic condition, the PC has sent back the project proposal for a recast.

The project denial came when Titas Gas company sought approval for 'Replacement and improvement of the existing gas network in Dhaka and Narayanganj City Corporation areas, incorporating GIS mapping and SCADA system project' at the Project Evaluation Committee (PEC) meeting last week.

According to the development project proposal (DPP), the state entity has undertaken Tk 81.61- billion-cost project for installing the pipeline where 90 per cent of the funds would be borrowed from home and abroad.

The company planned to borrow Tk 33.53 billion, equivalent to nearly US$280 million, from the China-based New Development Bank (NDB) and Tk 39.87 billion from government exchequer. The remaining Tk 8.21 billion was to be invested from Titas coffers.

The NDB charges interest rate based on SOFR and a spread of 50 basis points. It also charges front-end fee, commitment fee and maturity premium.

The loan's maturity is 20 years which is shorter than that of other loans, like from the World Bank, the Asian Development Bank, and Japan. The 6-month SOFR rate was 4.42096 per cent on Thursday.

Titas Gas has also sought Tk 39.87 billion in loan from the Ministry of Finance (MoF). The MoF usually borrows from local banking system for fulfilling the gap financing in the country's development works.

According to the PEC-meeting sources, the attendees asked the Titas management whether this type of project with massive borrowing is the priority one of the government at this moment when the country's revenue collection and foreign-exchange reserves are in a poor state.

"Most of the funds (Tk 39.87 billion or 49 per cent) will be borrowed from internal resources. This fund will be very costly as it will be borrowed from the domestic banking system," says the official who attended the PEC meeting.

The remaining 41 per cent will be borrowed from the NDB which is also a costly, market-based loan, adds the official, requesting anonymity.

"Since the government stopped residential and some other gas connections to the consumers, so the existing pipeline may be enough for supplying gas for some few years. Besides, the MIS and SCADA system installation is an ambitious work at this moment when the Bangladesh economy is under stress," he quotes the PEC meeting as saying.

Additionally, Titas has proposed spending Tk 61.05 million for hiring cars, Tk 35.85 million for training, and Tk 1.81 billion for land acquisition, which are deemed unnecessary spending, another official says.

According to the officials, the project's net present value (NPV) is very negative, giving rise to a big question on returns.

Meanwhile, the company has sought five and a half years as project-execution period till December 2030, which is "a violation of government's project preparation, processing, approval and revision guidelines", says the official.

No responsible executives from Titas Gas PLC were available for immediate comment.

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