State-run Petrobangla delays payments for some spot and long-term LNG imports

Bangladesh's national oil company Petrobangla is having difficulties in paying dues to LNG suppliers and international oil and gas companies, its Chairman Zanendra Nath Sarker said on May 29.

"Petrobangla is trying its best to clear the dues to LNG suppliers and the IOCs," he said, adding that the company should not be blamed for the dues.

Petrobangla usually purchases LNG and natural gas in US dollars but sells it in the local currency to end users through its subsidiary natural gas marketing and distribution companies. A depreciating currency and broader financial difficulties have already seen refined oil product suppliers threatening to stop supplies to state-run Bangladesh Petroleum corp.

"We wrote to the central bank and energy ministry to facilitate payments to LNG suppliers and Chevron [for domestic gas]," Sarker said. He did not provide further details on the overdue payments.

Separately, several officials at the state firm and the energy ministry said Bangladesh has delayed payments to LNG suppliers for both long-term and spot cargoes imported recently.

State-run Petrobangla has not been able to make regular payments to its two long-term LNG suppliers -- Qatargas and OQ Trading, previously known as Oman Trading International -- for some deliveries, a senior Petrobangla official said, declining to be named. The official said payments to spot LNG suppliers Vitol Asia Pte Ltd and France's TotalEnergies were also delayed.

Petrobangla owes around $100 million to Qatargas, $45 million to OQ Trading, $40 million to Vitol Asia and $20 million to TotalEnergies, which are already overdue, multiple company and government sources confirmed. Qatargas, Oman LNG, Vitol and TotalEnergies did not respond to queries.

According to its sales and purchase agreement, or SPA, with Qatargas, Petrobangla is obligated to make payments within 15 days of LNG delivery, and under the contract with OQ Trading it has a 25-day window to transfer payments, the official said.

Failure to make payment within the stipulated window results in arrears with interest accumulating at the LIBOR rate plus 4.0%-5.0% on the overall import bill. The interest payment against LNG imports is compounded quarterly, the officials said.

Petrobangla had first delayed payments to long-term LNG suppliers several months ago on at least a couple of occasions, which resulted in interest payments to Qatargas, the sources said. It could not pay on time against at least three LNG cargo deliveries by Qatargas, and two by OQ, they added.

The officials also said this was the first incident of paying interest to any supplier since Bangladesh began importing LNG around five years ago.

Fiscal difficulties

To come out of the crisis and settle dues up to September 2023, Sarker has sought financial assistance worth Taka 71.81 billion from the Ministry of Power, Energy, and Mineral Resources, or MPEMR.

Petrobangla has also written to Bangladesh Bank's governor seeking support to clear invoices against LNG purchases by providing US dollars, officials said.

Bangladesh has not defaulted on paying LNG import bills since the initiation of LNG imports in 2018, but delayed payments could impact future interest in its spot tenders or raise the premiums for supplying into the country due to higher financial risk.

The payment crisis had not impacted Petrobangla's recent spot tenders when it started to ramp up spot procurement in 2023. This was helped by the government's executive order raising domestic gas prices by up to 178.88%, effective from February 2023 to pass on higher gas prices to downstream users and ensure supply to industries and power plants.

Some officials believe that Bangladesh was prioritizing payments for LNG procurements to support critical businesses like the textile sector, which has bolstered GDP growth and dollar revenues for the country.

But it is facing financing difficulties despite a recent $4.7 billion loan approved by the International Monetary Fund on the condition that Dhaka will rein in high energy subsidies, most of which go to the electricity sector followed by natural gas.

Global economic turmoil caused by the ongoing war between Russia and Ukraine, which has led to high prices for various commodities including oil, energy and grains, is the main cause of the country's eroding repayment capacity, said Khondaker Golam Moazzem, research director at think tank Centre for Policy Dialogue.

Bangladesh is now following stringent measures to keep its foreign currency reserve at a satisfactory level by deferring overdue payments and cutting unnecessary imports to ensure the release of the second tranche of the IMF loan, which is due in November, Moazzem said.

Bangladesh received the first tranche of the IMF loan of $476.2 million on Jan. 30, with six more installments left. A senior ministry official said the IMF usually reviews various aspects of compliance before disbursing each tranche.

The South Asian country has been facing an acute dollar crisis since the beginning of the Russia-Ukraine war in February 2022. The country's foreign currency reserves dropped to around $30 billion last week from a record $48.6 billion in August 2021.

Officials said Petrobangla has also delayed payments to the operator of one of its floating, storage and re-gasification units for its re-gasification services, but the companies have not responded to enquiries.