Capacity payments: After rental power plants, now FSRUs

Ineptly done deals compel the government to make capacity payment in dollars worth around US$202,500 daily to two private FSRU owners without any re-gasification amid gas crunch, sources say.

They say the state-run Petrobangla faces a double-edged sword as it cannot use the re-gasification capacity of the two plant units-one locally owned and the other foreign-owned-for cutback on LNG import while it is forced to pay for their unused capacity.

Petrobangla is currently re-gasifying around 550 million cubic feet per day (mmcfd) of liquefied natural gas from the two LNG-import terminals, or floating storage re-gasification units (FSRUs). So, the plants run at around 55 per cent of their total re-gasification capacity of 1,000mmcfd, according to Petrobangla statistics available on August 10, 2022.

The daily capacity payment went as high as US$257,400 a couple of weeks back when LNG re-gasification dipped as low as around 428mmcfd, amid import crunch following payment worries for Bangladesh's reserves problem stemming from a global syndrome.

Energy experts term paying 'high' capacity payments to the FSRU owners a "total government failure to negotiate (deals) properly".

On top of that, owners of both the FSRUs - US Excelerate Energy's Excelence and local Summit Group's Summit LNG - are also enjoying waivers of import duties and value-added tax (VAT) regarding implementation of the FSRUs.

The FSRUs are also enjoying exemption from payment of VAT, advance tax and supplementary duties on products and services, according a senior official of the National Board of Revenue (NBR).

"Petrobangla currently imports less-than-required quantity of LNG from the international market to cut import bills under the ongoing government-declared (austerity) measures to save foreign currency," says Petrobangla Chairman Nazmul Ahsan.

It has ceased importing LNG from volatile spot market since July to reduce costs, he adds.

Separately, the state-run Bangladesh Power Development Board (BPDB) also is counting currently billions of taka as capacity payments to private power-plant owners sans output under the government decision to reduce electricity generation as part of the belt-tightening to reduce import of energy and safeguard foreign-exchange reserves.

The capacity payment to rental power plant operators exceeded Tk 265 billion in the fiscal year 2021-22, it was learnt.

Countrywide electricity generation was around 12,815 megawatts (MW) during peak hours against the overall electricity-generation capacity of around 22,482MWs as on August 10, 2022, according to BPDB statistics.

Sources say Petrobangla has deals with the LNG-terminal owners to pay around US$450,000 per day in total to re-gasify up to 1,000mmcfd LNG from the two FSRUs located at Moheshkhali island in the Bay of Bengal.

According to agreements, Petrobangla is required to pay the US's Excelence around US$237,000 per day and Summit LNG around US$217,000 per day, they add.

Petrobangla has got to pay to Excellence and Summit LNG no matter whether it re-gasifies the agreed quantity of LNG or less.

Both the deals are on take-or-pay basis, meaning Petrobangla will have to pay the said amount after commissioning of the FSRUs, no matter it re-gasifies LNG or not.

Both the FSRUs are designed to re-gasify around 500mmcfd, which is the agreed quantity between the Petrobangla and contractors.

Of the two FSRUs, the country's first LNG terminal, Excellence, re-gasified as high as 600mmcfd LNG alone before the commissioning of the second terminal.

Initially, gas-transmission-pipeline constraint was the major barrier to full utilisation of the FSRUs.

The delay in construction of a 30-kilometre 42-inch-diameter Anwara-Fouzdarhat gas pipeline had forced Excellence to limit downward the LNG re-gasification from its FSRU from the day one of initiating its commercial operation in August 2018.

Petrobangla started re-gasifying around 100mmcfd LNG from the Excellence, which is one-fifth of its capacity, on August 19, 2018.

The country's second LNG-import terminal - Summit's FSRU -- started operation on April 30, 2019, doubling the total re-gasification capacity to 1,000mmcfd.

Delays in construction of two major pipelines -- one 42-inch 90km pipeline from Moheshkhali to Anowara and another 36-inch 181km Chittagong-Feni -Bakhrabad line- delayed full utilisation of Summit's FSRU almost for one year until March 2020.

"It's unfortunate that the government has awarded both the FSRUs to private sector without competitive tenders and is now making huge capacity payment in US dollar," says energy expert professor Ijaz Hossain.

Making capacity payment in dollar is squeezing country's already- strained foreign-currency reserves, says the professor of Bangladesh University of Engineering and Technology (BUET).

According to data from Bangladesh Bank, country's foreign-exchange reserves in late July declined to $39.77 billion--the lowest in two years.

The country has already sought US$4.5b in loan from the International Monetary Fund (IMF).

South Asian neighbours Pakistan and Sri Lanka also sought IMF help to cope with mounting pressure on their foreign-exchange reserves, too.

"This is an outcome of non-transparent unsolicited deals with the FSRU owners on ad-hoc decision from government high-ups without considering much of the consequences," says Prof Hossain.

Another energy expert, Prof Badrul Imam, termed the capacity payments to the FSRU owners 'catastrophic'.

"It is a sort of wasting public money," says Mr Imam, a senior professor of Geology at Dhaka University.

Bangladesh's overall natural gas supply now hovers around 2,889mmcfd, including re-gasified LNG of around 550mmcfd, against total demand for over 4,100mmcfd, according to Petrobangla as on August 10, 2022.

The country currently imports five to six LNG cargoes monthly from two long-term LNG suppliers--Qatargas and Oman Trading International, or OQ. The imports currently cost around $12 per million British thermal unit (MMBtu).

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