Petrobangla looking for bank loans

Amid a severe fund crisis, Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) is looking for bank loans to import liquefied natural gas (LNG) as government subsidies are not enough.

However, experts say Petrobangla will become a sick corporation if it takes out loans. They have suggested reducing LNG imports and focusing on domestic gas production.

Petrobangla officials say several multinational banks and a group of domestic ones want to lend to Petrobangla, and they are also lobbying high-level government officials with both written and verbal proposals to this end.

They also say LNG imports in the last four years have led to the fund crisis, resulting in increasing pressure on the government to provide subsidies. As a result, the Finance Division has asked Petrobangla to look for alternative sources of funds.

Petrobangla Chairman Nazmul Ahsan told The Business Post, “We need money, and many are coming up with loan proposals. A committee will verify those and make the selection, but the government will make the final decision.”

Petrobangla’s accounts department says the corporation had Tk 25,000 crore in its fund in 2016, which began to shrink when LNG imports started in 2018. LNG imports from the spot market began in 2020. LNG prices have skyrocketed in the world market since the end of last year.

The government subsidises a portion of the LNG import costs, but that is not enough. Petrobangla spent Tk 8,000 crore more than its income in the fiscal year 2019-20, its annual report shows.

Due to a lack of funds, Petrobangla is even unable to pay VAT to the National Board of Revenue. That is why the Finance Division has asked Petrobangla to look for alternative sources of funds, said its officials.

Petrobangla accounts department officials say some multinational banks led by London-based HSBC, Standard Chartered, and the United Arab Emirates-based Mashreqbank as well as a group of domestic ones led by Eastern Bank have made written and verbal loan proposals.

A senior official of the accounts department told The Business Post multinational banks were trying to lend to Petrobangla to protect their own business interests. The Business Post could not reach the banks to verify the accuracy of his statement.

“We do not want Petrobangla to be in debt, but there are only a few options left at the moment. That is why we want secured loans,” the official added.

Petrobangla General Manager (accounts) Nazrul Islam said Bangladesh Petroleum Corporation (BPC) had borrowed from the International Islamic Trade Finance Corporation (ITFC) and the Finance Division had asked Petrobangla to look for ITFC loans.

He also said the Bangladesh government has shares in the ITFC.

According to the BPC’s finance department, the corporation has been borrowing from the ITFC since 1996 to import crude oil. This requires a counter-guarantee from the finance ministry and a sovereign guarantee from the Bangladesh Bank.

In the last financial year, BPC borrowed $850 million from the ITFC at a 2.95 per cent interest. It plans to borrow another $1,400 million in the current fiscal year.

BPC Director (finance) Kazi Muhammad Mozammel Haque told The Business Post Bangladesh is an ITFC member country.

“ITFC loans are available on easy terms, and there is an obligation to repay within six months. These are strategic loans to buy crude oil easily,” he said.

Nazrul said the government had asked Petrobangla to look for alternative sources of funds, which was a long process.

“We have heard that HSBC, Standard Chartered, and many others have submitted loan proposals, but the matter will be decided by the Economic Relations Division (ERD), the energy ministry, and the finance ministry,” he said.

“The law ministry’s vetting will be required as well. It will take quite a while,” he added.

What experts say

A member of the Bangladesh Energy Regulatory Commission has blamed Petrobangla for its financial crisis. He said domestic gas production had decreased due to the incompetence and inefficiency of Petrobangla officials.

“They could not take any action. That is why the government has been forced to import LNG,” he said.

He thinks there is no chance of falling into a debt trap if Petrobangla can handle domestic gas production efficiently.

Badrul Imam, a former geology professor at the University of Dhaka, said Petrobangla would become a sick corporation and a losing concern if it took out loans from multinational banks.

He said international oil companies produce 50-70mmcfd gas from each well in Bangladesh but companies under Petrobangla produce less than 30mmcfd.

“The wells need a workover to increase production. If 50 wells are repaired, it is possible to produce the same amount of LNG.”