Bangladesh to clear energy bills ahead of elections, revamps upstream contracts

Bangladesh is to pay around $960 million per month from July to clear outstanding payments to LNG suppliers, international oil companies and local and foreign power plant owners, State Minister for the Energy and Mineral Resources Division Nasrul Hamid told reporters late July 27.

Around $240 million will be paid every week, of which $160 million will be paid to the power division under the Ministry of Power, Energy and Mineral Resources, or MPEMR, to clear debt with different power plant owners and $80 million to the EMRD to make payments to LNG suppliers and IOCs, he said.

The decision came following a recent directive from Prime Minister Sheikh Hasina, who is also the minister in charge at the Ministry of Power, Energy and Mineral Resources, Hamid said.

State-run Petrobangla Chairman Zanendra Nath Sarker had sent letters to the MPEMR recently stressing the need to clear debt to LNG suppliers -- both long-term and spot -- and IOCs to ensure uninterrupted natural gas supplies.

MPEMR's Power Division in a recent presentation also sought around $5.921 billion to ensure uninterrupted electricity supply for the fiscal year 2023-24, which starts in July 2023.

Despite a difficult fiscal situation, Bangladesh aims to clear its energy bills with support from global lenders to avoid disruptions before the next general election, scheduled for January 2024. Petrobangla has already initiated talks to borrow around $500 million from the Islamic Trade Finance Corporation, a member of the Islamic Development Bank.

Of the government's arrears up to June, around $2.4 billion was owed to private independent power producers, or IPPs, $475 million for electricity imports from India, $350 million to companies like Chevron and KrisEnergy for domestic gas, and $320 million to LNG suppliers, including contracted suppliers Qatargas and OQ Trading, and spot suppliers, according to a senior Petrobangla official.

These companies have been issuing letters warning that fuel supply could be halted, or security guarantees with banks could be forfeited.

Upstream contracts

Meanwhile, this week Bangladesh's cabinet committee on economic affairs also approved the country's first ever Brent crude-linked model production sharing contract, based on which it plans to launch offshore bidding rounds for hydrocarbon exploration in sovereign waters, a senior Petrobangla official said.

The Bangladesh Offshore Model Production Sharing Contract 2023 was drafted to attract IOC investment in the next upstream auction.

The model PSC, which came four years after the previous one of 2019, is expected to woo back foreign investors as it is based on a profit-sharing formula instead of the previous production-based formula, said the Petrobangla official.

This means the companies will be able to deduct their costs, investors will get an enhanced share of the output, and companies will have the right to export natural gas after meeting domestic demand.

Under the new contracts, Petrobangla would purchase natural gas from foreign exploration contractors at 10% of three months' average Brent crude price without cap, which equates to more than three times the current price of around $2.75/MMBtu at a Brent crude price of around $83/b.

Bangladesh's new model PSC has linked the hydrocarbon price with the same benchmark used to buy LNG without capping the price, he said. Bangladesh previously received a portion of the gas production as "profit gas" and the remaining gas was purchased at the contracted value, said the official.

Bangladesh currently has 26 open offshore and 22 onshore blocks. Fifteen of the offshore blocks are located in deep water and 11 in shallow water.

The country has PSCs for two shallow water blocks, SS-04 and SS-09, which are being explored jointly by India's ONGC Videsh and Oil India. Only four of the onshore blocks have been awarded to foreign companies; Chevron has been exploring and producing natural gas at three onshore blocks, while Singapore's KrisEnergy is producing natural gas from Block-9.

Deepwater exploration in Bangladesh suffered a setback when South Korea's POSCO International exited block DS-12 in 2020 after seeking an extension of its PSC with better commercial terms, which Petrobangla refused.

Petrobangla had earlier awarded the DS-12 block along with two other deepwater blocks, DS-16 and DS-21, to a joint venture between ConocoPhillips and Norway's Statoil in a 2012 bidding round, but the firms backed out before inking production-sharing contracts citing unattractive commercial terms.