The Russian fuel conundrum

Russia has offered Bangladesh Petroleum Corporation (BPC) cheap fuel, but experts warn this will damage vehicle engines.

BPC says Russia has offered it the lowest-grade diesel priced at $57 per barrel, which contains high sulphur (5,000 ppm).

Experts say this fuel is not suitable for vehicles used in Bangladesh. Echoing the experts, BPC officials also say this fuel will harm engines.

Russia says it can also provide high-quality diesel (10ppm and 20ppm), which is better than what Bangladesh currently uses. But this will not be profitable for Bangladesh due to high prices and other premium issues, say experts.

BPC officials also believe the landed cost of high-grade diesel may exceed $160 per barrel, which will not be profitable for Bangladesh.

Amid this dilemma, BPC says Russia sent 50kg crude oil for refinery testing on August 24, which would be sent to Eastern Refinery Limited (ERL) in Chattogram.

“There is no opportunity to refine Russian crude oil at ERL due to technical weaknesses. That is why we have no option to import it,” a senior BPC official said.

Mohammad Tamim, a professor of petroleum engineering at the Bangladesh University of Engineering and Technology, told The Business Post the 5,000ppm diesel is a killing chemical.

He said it would destroy engines but could be used in power plants.

The professor further said the 10ppm and 20ppm diesel types contain almost no sulphur and are being sold at $137 per barrel in the world market.

“Even if Russia sells those to BPC at $120 per barrel, it will not be profitable for us because it will cost another $20 in premium to bring it to Bangladesh,” he explained.

BPC undecided on technical specifications

On August 16, Prime Minister Sheikh Hasina directed the authorities concerned to find a way to procure cheap fuel from Russia.

Before that, the Russian state-owned oil company Rosneft had sent a proposal to BPC to sell diesel at just $57 per barrel, meaning the cost would be Tk 40 per litre for Bangladesh. In the proposal, Rosneft said it would offer 5,000ppm diesel.

But BPC replied this diesel is practically unsustainable as per Bangladeshi standards. It said it buys 50ppm diesel as per the Bangladesh Standards and Testing Institution criterion from China, Malaysia, Indonesia, Kuwait, and Thailand.

After that, Rosneft and several Russian private companies sent another proposal to supply diesel of different grades, including 10ppm, 20ppm, 50ppm, 100ppm, and 5,000ppm, but they did not specify prices.

BPC then formed a committee to scrutinise the proposal. Its Director (operation & planning) Khalid Ahmed told The Business Post the committee is working on the proposal’s technical specifications. “We will have an online meeting with Russians on Saturday [today]”.

He also said shipping, insurance, and payments would be discussed during the meeting.

Another BPC official told The Business Post importing fuel from Russia is too risky and unlikely to start soon as its standards are very low. “It may be possible to buy this oil to save dollars, but it will not work.”

ERL unable to refine Russian crude

BPC says Russia at first proposed cheap crude oil before offering refined oil. But BPC could not buy it due to ERL’s inability to refine the oil.

The state-owned corporation says ERL can refine only two types of crude oil – Arabian Light crude from Saudi Arabia and Murban crude from the United Arab Emirates.

Its officials say it is not possible to refine Russian crude at ERL due to its type. One of them told The Business Post on Friday Russia had willingly sent the August 24 shipment.

He said the shipment had not yet been released at the airport. “We do not even know who will release it.”

The Western nations imposed sanctions on Russian oil, gas, and coal exports after the Ukraine invasion. But defying the sanctions, India and China are importing Russian crude oil at rates that are at least $20 less than that in the global market.

The two Asian nations are importing the oil as they have the required refining capacities.

Payment method

Two major questions have arisen against the backdrop of importing Russian fuel – how import bills will be paid and whether the imports will worsen Bangladesh’s diplomatic relations with its big trade partners, including Europe and the US, amid the Western sanctions.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office, told The Business Post Europe and America are buying energy from Russia despite the sanctions. That is why there should not be a problem if Bangladesh also does the same, he said. The economist said Bangladesh could consider barter trade to import Russian fuel. “It is also possible to follow the payment systems of China and India.”