Three pvt banks to open $240m LCs for LNG imports

State-run Petrobangla has started the process of opening letters of credit (LCs) with private commercial banks alongside government-owned ones to facilitate the import of liquefied natural gas (LNG), thus creating scope to clear its arrears to international oil companies (IOCs), said sources.

With the help of private banks, it has brought down the LNG-import arrears by around one-fourth to nearly $340 million within a couple of weeks from $455 million, a senior Petrobangla official said.

He hoped the amount of unpaid bills would decrease further soon as more private banks are interested in opening LCs for Petrobangla to make LNG import payments.

To date, Petrobangla has inked deals with Prime Bank, City Bank, and Brac Bank to open LCs of various credit limits to import LNG, market insiders said.

City Bank will provide Petrobangla with a maximum credit of $100 million, Brac Bank $90 million, and Prime Bank $50 million, they said.

Officials said Petrobangla has started opening LCs with private banks to import LNG and clear the outstanding payments after seeing the success story of state-run Bangladesh Petroleum Corporation (BPC).

BPC has cleared all its dues to the international oil suppliers within a couple of months with the help of half a dozen private banks.

It owed overseas suppliers around $350 million in September last year, which came down to almost zero by October, said one of its senior officials.

The benefit of opening LCs with private banks is the availability of the greenback, he said.

"However, private banks seek LC money in full on the due date, whereas state-run ones offer flexibilities," he added.

Sources said Petrobangla has master sales and purchase agreements with spot LNG suppliers and is obliged to make payments within 15 days of delivery.

It also has sales and purchase agreements (SPAs) that require it to pay within 15 days of LNG delivery.

The agency has the liberty to make payments to Oman's OQ within 25 days of LNG imports, as stated in the SPA.

In case of failure to make regular payments, Petrobangla is obliged to pay along with interests at the Secured Overnight Financing Rate (SOFR) in addition to 4.0-5.0 per cent on the overall import bills.

The demurrage payment compounds quarterly.

The government's overdue LNG payments reached a peak in recent times, traders said.

Officials said the previous government also struggled to clear LNG payments last year.

To ensure payments to suppliers, the Energy and Mineral Resources Division under the Ministry of Power, Energy and Mineral Resources recently sought around $1.0 billion from the Ministry of Finance (MoF) by June, a senior MoF official told The Financial Express.

Energy ministry officials said Bangladesh has never defaulted on gas bills to IOCs and LNG payments since the initiation of the gas imports in 2018.

The global economic turmoil caused by the ongoing Russia-Ukraine war, which has caused the prices of various commodities, including oil and grains, to spiral, is the main reason behind Bangladesh's eroding capacity to make payments, they added.

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