Govt provides sovereign guarantee to WB for LNG import financing

The government has extended a sovereign and indemnity guarantee to the World Bank (WB) to support Petrobangla's costly liquefied natural gas (LNG) imports, ensuring payment if the state-run company fails to repay its loans on time.

A senior official from the Finance Division under the Ministry of Finance (MoF) told The Financial Express on Saturday that the MoF provided the counter-guarantee or indemnity to the multilateral donor agency to reimburse funds, if needed. The World Bank's repayment guarantee is thus backed firmly by the Ministry of Finance's sovereign guarantee.

Officials said Petrobangla has already selected eight local and foreign commercial banks to facilitate LNG imports, secured by a repayment guarantee from the World Bank. This step aims to safeguard Bangladesh's future energy supplies and ease pressure on foreign exchange reserves.

Following a competitive tender, Petrobangla shortlisted three foreign banks -- Germany's Deutsche Bank, the Development Bank of Singapore, and Standard Chartered -- along with five local banks -- Prime Bank, Eastern Bank, Dutch-Bangla Bank, City Bank, and BRAC Bank -- to provide financial support for LNG imports starting in 2026, said AKM Mizanur Rahman, Petrobangla's finance director.

These banks were selected from 31 banks and 11 consortiums that submitted bids.

The selected banks will form a consortium to provide Petrobangla with a standby letter of credit (SBLC) worth US$200 million, valid for up to 12 months, in favour of long-term LNG suppliers under existing sales and purchase agreements (SPAs). They will also offer an additional SBLC of $50 million, valid up to 90 days, for spot LNG suppliers under master sales and purchase agreements (MSPAs). Also, the consortium will provide a $100 million credit line as short-term loans with up to a 12-month tenor to help Petrobangla meet payment obligations for specific LNG cargoes under the SPAs and MSPAs.

Petrobangla officials said negotiations are in the final stages before signing the agreements.

This financing arrangement follows the World Bank's board approval in late June of $350 million under its Energy Sector Security Enhancement Project, which aims to improve Bangladesh's gas supply security by facilitating affordable financing for LNG imports.

The project will leverage an International Development Association (IDA) guarantee to mobilise up to $2.1 billion in private capital over the next seven years to support LNG imports.

The IDA, the World Bank's soft-lending arm, will guarantee Petrobangla's repayment obligations to the banks for loans and SBLC draws, covering up to $350 million in principal and accrued interest. The guarantee excludes penalties, default interest, or similar charges.

This is the first time the World Bank has provided assistance to Bangladesh through a guarantee facility specifically for LNG imports, beyond its usual development project loans and budget support.

The IDA guarantee is expected to enhance Petrobangla's credit profile, enabling it to secure LNG supplies more effectively amid growing foreign currency constraints.

The World Bank noted LNG now accounts for over a quarter of Bangladesh's total gas consumption, costing around $4.5 billion annually.

Approximately 42 per cent of the country's gas is consumed by the power sector, making LNG supply disruptions a significant risk to electricity generation and overall economic activity.

Bangladesh's increasing reliance on imported fuels continues to strain the economy, especially due to difficulties securing foreign currency for essential imports.

Since LNG imports began in 2018, Bangladesh has imported about 31.24 million tonnes of LNG as of June 2025, according to data from Rupantarita Prakritik Gas Company Ltd.

With domestic gas reserves rapidly depleting, Bangladesh is expected to need 30 million tonnes of LNG annually by 2041 to meet growing demand.

A recent study by Danish consultancy Ramboll, in collaboration with the Geological Survey of Denmark and Bangladesh-based EQMS Consulting, warned that the country's existing gas reserves could be exhausted by 2038 without new discoveries.

Petrobangla projects that daily gas demand will reach 8 billion cubic feet by 2041 -- significantly higher than the current supply of around 2.87 billion cubic feet per day. Of this, roughly 1.02 billion cubic feet comes from imported LNG, while 1.85 billion cubic feet is sourced domestically.

Currently, natural gas production from local fields has declined to about 1,800 million cubic feet per day (mmcfd), comparable to the 2008-09 level. Gas supply has been steadily decreasing since peaking in fiscal year 2016-17.

Bangladesh's highest ever natural gas production was 2,786 mmcfd on May 6, 2015.

Energy expert Prof Ijaz Hossain said the country has consumed an estimated 15 trillion cubic feet (Tcf) of gas to date, with remaining reserves below 9.0 Tcf. At the current consumption rate, these reserves are expected to be nearly exhausted by 2030.

Bangladesh recently cleared all its overdue LNG import bills after facing payment challenges over the past three years.

Petrobangla officials noted that the IDA guarantee, alongside an existing $600 million loan agreement with the International Islamic Trade Finance Corporation (ITFC), will help the country make timely payments for LNG imports going forward.

azizjst@yahoo.com