After BPC, Petrobangla is in financial crisis

While the Bangladesh Petroleum Corporation is in serious financial trouble for a lack of access to US dollars to import necessary energy resources, the state-owned Petrobangla is facing a massive backlash in unpaid bills from other state-owned companies for power consumed. Things are definitely not working out for energy planners at the moment. According to a report published in this newspaper recently, the default in payments is mind-boggling. Reportedly, state-owned gas-based power plants have not paid their gas bills since February and arrears have proliferated to Tk 85 billion. Indeed, state-owned fertilizer factories that are solely dependent on natural gas to produce their products also stopped paying gas bills since February and their cumulative unpaid gas bills amount to Tk 15 billion.

None of this comes as much of a surprise of course. The Bangladesh Energy Regulatory Commission's (BERC) mandate was revised so that public hearings were no longer mandatory and the government could revise energy bills at will. That resulted in BERC taking the fateful decision to raise gas price for fertiliser factories by 258 per cent from June, 2022. A nearly three-fold increase in the primary input in cost of production meant that domestically produced fertiliser would go down under if a corresponding price hike occurred in retail pricing. As these are also state-owned enterprises, they could and do somehow manage to get away with not paying billions of Taka in energy bills to Petrobangla. Consequently, energy bills have not been paid for more than a year since the bill hike. In dollar terms, the unpaid amount is nearly US$1.0 billion.

So, on the one hand, government-owned energy companies that utilise gas to produce power have run up their energy bills to $787 million over the past eight months and this situation has been allowed to fester by the concerned ministry. To make matters worse, retail price of gas was hiked again in January, 2023 by 14.5 per cent to 1789 per cent for industries by an executive order that went into effect on February 1. What is the point of such upward price revisions if state-owned companies keep defaulting on payments? The mounting financial losses put Petrobangla in a serious bind. It is hamstrung by arrears and also the lack of availing of loans from commercial banks. How will it continue to import liquefied natural gas (LNG) if financial institutions refuse to lend to Petrobangla as it doesn't have the required deposits in local currency?

Although the government did not raise gas tariffs for fertiliser factories in January 2023, the Bangladesh Energy Regulatory Commission (BERC) had ordered a 259.55 percent hike for these factories with effect from June 2022. Private sector has no choice but to clear energy bills because a refusal to do so would mean stoppage of gas supplies leading to loss of production. State-owned entities do not have that problem and this is the crux of the problem. For decades, energy bills were kept artificially low leading to a lack of initiative to make state-owned factories like fertiliser and power companies efficient. There was little effort to upgrade them or shut down inefficient plants and replace them with new ones. Now, at a time of national energy crisis, the revised rates of energy are being enforced and while private sector complies, there is no compulsion for state-owned entities to comply with new prices.

The only solution is that a system be worked out for payment of backlog in bills to Petrobanla so that it may begin the process of balancing its books. Without that, Petrobangla runs the risk of being branded, as an institution, a losing concern and one that would be shunned by the banking system. Fresh infusion of funds from the state coffer is one way of averting a crisis in the short term, but a more pragmatic solution would be to realise unpaid sums in a manner that works for both default parties and Petrobangla. As things stand now, the country's power generation is largely dependent on import of primary energy fuels ranging from LNG to oil. Since industry owners and Bangladesh Independent Power Producers' Association (BIPPA) have been clearing their dues, the concerned ministry needs to raise the issue at the right forum in government decision making to pass legislation that would compel defaulting state-owned companies to work out a payment scheme to clear their energy dues.

Although it is clear that the country simply cannot afford to be dependent on foreign import of primary energy, Bangladesh refuses to expedite domestic exploration of natural energy resources. The continued failure to do so is resulting in all sorts of default in payment for power consumed, which in turn is pushing corporations like Petrobangla to the point of financial ruin. There is no alternative to boosting domestic supply of gas.

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