Supplier seeks to hike tariff as cement co sticks to terms of deal

State-run Jalalabad Gas Transmission and Distribution Systems Ltd (JGTDSL) has sought to increase the tariff of natural gas it makes available to LafargeHolcim Bangladesh Ltd for running its captive power plant.

Arguing that the tariff rate is lower than the rate fixed by the country's energy regulator, the JGTDSL pointed out that LafargeHolcim was paying less for gas it consumes to run its standby captive power plant.

The multinational company LafargeHolcim, however, claimed that it was paying tariff in line with a gas sales agreement (GSA) signed between JGTDSL and then Lafarge Surma Cement Ltd in January 2003.

The JGTDSL sought intervention from Energy and Mineral Resources Division (EMRD) under the Ministry of Power, Energy and Mineral Resources (MPEMR) to resolve the dispute.

A five-member committee constituted by EMRD, however, is now working to settle the row.

"We are providing gas bill to LafargeHolcim in line with the tariff set by Bangladesh Energy Regulatory Commission (BERC), but the cement company is paying less, citing the terms of the GSA," managing director of JGTDSL Md Khalequzzaman told the FE.

He said the cement company is consuming around 16 million cubic feet per day (mmcfd) of gas. Of the total, it consumes 3.70 mmcfd to operate a captive power plant and the remaining 12.30 mmcfd to run boiler for cement production.

Gas tariff for captive power plant is Tk 9.62 per cubic metre while for industries it is Tk 7.76 per cubic metre as per the BERC's latest gas tariff hike effective from June 1, 2017.

But the cement factory has been paying Tk 7.91 per cubic metre as gas price for its captive power plant, which is the ceiling price at US$2.8 per Mcf (1,000 cubic feet) as set in the GSA between the two companies, said Mr Zaman.

"We don't have any argument now over the company's gas consumption for industrial purpose as the tariff is below the ceiling price of the GSA," he said.

But gas tariff for industrial consumers might go up soon with the import of expensive LNG (liquefied natural gas) as the government might blend imported re-gasified LNG with locally produced gas and BERC is set to fix a new tariff, sources said.

Consumers Association of Bangladesh (CAB) also protested the lower gas tariff for the LafargeHolcim's cement factory.

"The gas tariff for the cement factory should be in line with the tariff rate set by BERC," said CAB energy adviser Dr Shamsul Alam.

When contacted, the spokesperson for the cement factory said, "LafargeHolcim has taken note of concerns of the government and Consumers Association of Bangladesh regarding the company's agreement with Jalalabad Gas."

LafargeHolcim Bangladesh believes that the binding terms of the agreement should be respected by all the parties, he said, adding that supply of gas at a pre-arranged price is crucial for sustainability of the company's landmark Chhatak project, the country's only fully-integrated cement plant.

He added: "The agreement between the company and the government of Bangladesh provides a ceiling price. This is a common feature applied internationally to protect large investments from unexpected cost increase. The agreement was one of the major considerations for LafargeHolcim Group (Switzerland) and Cementos Molins (Spain) to support this project."

Spanish Ambassador Alvaro de Salas Gimenez de Azcarate in a recent letter to State Minister for MPEMR Nasrul Hamid stated, "The embassy of Spain in Bangladesh strongly suggests that the terms of the GSA must be respected by both the parties while the differences of opinion should best be resolved between the parties amicably."

LafargeHolcim Bangladesh Ltd, previously known as Lafarge Surma Cement Ltd, is a joint venture of LafargeHolcim, a world leader in building materials and Cementos Molins Group of Spain.

LafargeHolcim Group of Switzerland and Cementos Molins Group of Spain jointly own 58.87 per cent share of the company. Some 41 per cent share is owned by Bangladeshi nationals.

It was incorporated on 11th November 1997 as a private limited company in Bangladesh under the Companies Act 1994.

Subsequently, it was made into a public limited company on 20th January 2003. The company is listed on Dhaka and Chittagong Stock Exchanges and has 35,000 shareholders.

[email protected]