Gas, power price hikes likely in tandem

A successive hike in gas tariffs, too, for all consumers but households over next three years is likely to phase out government subsidy under a reform recipe.

Economists say the raise-in sync with already-hinted hike in power price--would further add to people's cost of living pushed up by consumer price rises.

The Prime Minister's Office (PMO) recently approved a proposal prepared by the Finance Division under the Ministry of Finance for adjusting power and natural gas tariffs significantly, a senior finance official told the FE Saturday.

In line with the tariff-hike plan, state minister for the Ministry of Power, Energy and Mineral Resources Nasrul Hamid last week hinted at raising power tariffs with effect from March.

The extent of increase might be around 4.0 to 5.0 per cent, said a senior Power Division official under the MPEMR.

Talking to newsmen, Mr Hamid, however, did not say when gas tariffs could be hiked.

Sources have said the Finance Division last week provided Tk 5.0 billion to state-run Petrobangla as first dollop of subsidy payments in the current fiscal year (FY 2023-2024) to foot bills for import of liquefied natural gas (LNG) that supplements natural gas in the national grid.

The Ministry of Finance had provided around Tk 50 billion as subsidy to Petrobangla in the last financial year (FY'2023).

Separately, the corporation inked an agreement to borrow US$500 million from the Jeddah-based International Islamic Trade Finance Corporation (ITFC) to bear hefty bills on LNG imports for next fiscal (FY'2025).

Sources have said the interest rate on the loan would be 'secured overnight financing rate' (SOFR)-plus 2.0 per cent, which currently totals around 7.31 per cent. The SOFR currently hovers around 5.31 per cent.

Since July 1st, 2023, the SOFR has replaced the London Interbank Offered Rate (LIBOR) as new benchmark-interest rate for international lending.

The state-owned Oil, Gas and Mineral Corporation, nicknamed Petrobangla, had never borrowed from multilateral donor agencies before.

The corporation, however, has long been pressing the government to get the US dollar amid its struggle to settle dues to LNG suppliers (long-term and spot suppliers) and international oil companies (IOCs) producing natural gas in Bangladesh.

Previously, it spent an estimated Tk 20 billion from the Gas Development Fund (GDF) for making import payment.

The GDF was initially set up to provide funding support for hydrocarbon exploration in potential onshore fields and almost virgin turfs in the Bay of Bengal.

Officials say the petroleum oil and LNG suppliers and the IOCs have long been pressing both the BPC and the Petrobangla for clearing back payments, with forewarning of supply cease.

As the repayment status turned for the worse, France's TotalEnergies and Gunvor Singapore notified the Petrobangla last July to clear outstanding payments for spot LNG cargoes or else forfeit monetary guarantees with the state bank.

Both LNG suppliers sought full clearance of pending invoices within three working days, otherwise they warned of adjusting dues from guarantees under the standby letters of credit, or SBLC, kept by Petrobangla with state-run Agrani Bank Ltd against LNG trading with the suppliers, according to sources.

Apart from spot suppliers, Petrobangla has been struggling to pay long-term LNG suppliers, too.

The importer has not been able to pay regularly to the two existing long-term suppliers--Qatargas and Oman Trading International (OTI), now OQ Trading-- against LNG purchases, according to market-insiders.

Petrobangla owes around $500 million to the LNG suppliers to date.

It was also known to be struggling to make regular payment to US oil-major Chevron for gas purchases since September 2022, and currently owes over $250 million to the firm.

Officials say the government previously raised natural gas tariffs up to 178.88 per cent by executive order with effect from February 1, 2023, barely six months after the previous hike, apparently under ongoing reform drives.

Consumers in households, fertiliser factories, compressed natural gas (CNG) stations and tea estates were, however, exempted from the increase in gas tariffs.

During the hike, the government raised the maximum tariff for government power plants, independent power plants (IPPs) and rental power plants owned by private sector to Tk 14 per cubic meter from previous rate of Tk 5.02, which comes to a 178.88-percent rise.

Small and cottage industries are now counting the second maximum hike to Tk 30 per cubic meter from previous Tk 10.78, which accounts for a rise at 178.29 per cent.

Energy-regulator BERC in its June 2022 order had lowered tariffs for small and cottage industries by 36.74 per cent to Tk 10.78 per cubic meter from previous Tk 17.04.

The government increased natural gas tariffs for captive power plants, small power plants and merchant power plants by 87.50 per cent to Tk 30 per cubic meter from previous Tk 16 per cubic meter last year.

Gas-guzzling big industries are now paying at Tk 30 per cubic meter from previous Tk 11.98 per cubic meter.

Consumers in medium-category industries are paying Tk 30 per cubic meter from previous amount of Tk 11.78.

Commercial consumers, including hotels, restaurants and similar businesses, are counting higher bills by 12.80 per cent to Tk 30.50 per cubic meter from previous Tk 26.64.

The Bangladesh Energy Regulatory Commission (BERC) previously had hiked natural gas tariffs by 22.78 per cent on average with effect from June 1, 2022 after holding public hearings.

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