Although historically a private sector activity, petroleum sector operations in Bangladesh - in refining, import and marketing - have been dominated by public sector entities. Active private participation in various areas of petroleum operations has been precluded by public monopoly, reinforced by policies and lack of access to infrastructure. Private participation has been limited to retail distribution and inland transportation of petroleum products, and trading and distribution of lubricants, LPG, and CNG, where the private sector has built some infrastructure. 

The entities in the public sector are the Bangladesh Petroleum Corporation (BPC) and its seven subsidiaries. These are three marketing companies -- Padma, Jamuna and Meghna; one refinery --Eastern Refinery Limited (ERL) located in Chittagong; two LPG bottling plants at Kailashtila and in Chittagong; two lube oil blending plants -- one is operated by Standard Asiatic Oil Company (SAOCL) and the other by Eastern Lubricants Blenders Limited (ELBL).

Established in 1976, BPC is a holding corporation under the Companies Act. The oversight function is carried out by the Energy Division of the Ministry of Power, Energy and Mineral Resources.

There are two government-owned suppliers and producers of PPs and five private bottlers and marketers of LPG:

· Bangladesh Petroleum Corporation (BPC) 
· Rupantarita Prakritik Gas Company Ltd (RPGCL)

Private LPG bottlers and marketers: 

· Jamuna Spacetech JV Ltd,
· Total Premier LP Gas Ltd,
· Bashundhara LP Gas,
· Kleenheat LP Gas, and 
· Summit-Surma Petroleum Company Limited.

In addition to the above entities, there are three lubricant blending companies of which two are private and the one is a joint venture between the GOB and Exxon Mobil (Mobil-Jamuna Lubricants Ltd.) and at least forty lubricant marketing companies operating in Bangladesh.

It should be also noted that both the lubricant and the LPG markets have been liberalized by opening it up to private investors and allowing private participation in NGL fractionation projects has been under consideration by the Government.

The structural design of the petroleum sector indicates that though the private sector has been allowed to participate in the oil business, yet the major components of the business are under control of the Public sector or Government. In the energy policy of the country there has been emphasis on participation by private sector in the oil sector. But in practice this step has not gained enough momentum to draw attention of the relevant circle.

The volume of domestically refined POL products has remained stagnant at around 1.3 million MT. Bangladesh has relied almost entirely on imports for the major POL products -- notably diesel, kerosene, petrol and jet fuel -- for meeting its incremental demand since the early nineties. The shift has been significant, with the share of domestically refilled products in total distribution declining secularly -- from 70 percent in the early nineties to around 35 percent in recent years. Diesel and kerosene together account for three-fourths of total distribution -- the share of diesel being 56 percent and that of kerosene 19 percent. There is considerable excess demand for these two products, and it is argued to be cost effective to import them.

The petroleum sector contributed substantial tax revenues and dividends to the exchequer during most of the nineties, but BPC became the largest source of SOE losses starting from FY2000. There has been in place high protection of BPC`s operations through state monopoly in refining and import of petroleum, monopoly pricing, high indirect taxation and restrictions on entry in marketing. BPC earned profits and contributed dividends to the exchequer during most years up to FY99, largely by virtue of the public monopoly and associated protection. The petroleum sector has contributed substantial indirect taxes, around 13 percent of budgetary revenues annually, in recent years. In FY01, for instance, BPC accounted for 59 percent of total SOE losses. Its debts owed to domestic and foreign banks have become a major source of contingent liability for the exchequer.


The viability of petroleum operations and BPC`s financial performance deteriorated noticeably in recent years because of increases in world market oil prices that have not been matched by adequate price and/or tax adjustments, in addition to operational inefficiencies. BPC earned sizable profits and reasonably satisfactory ROA (before interest), averaging 15 percent in the early nineties. This outcome was largely due to the state monopoly in petroleum refining, external trade and marketing and associated protection. BPC`s profits came down in the second half of the nineties because of a number of factors. These include: a significant rise in indirect taxes on petroleum products; rise in world prices of crude oil and POL products in recent years, together with exchange rate changes, not matched by adequate tariff and/or indirect tax adjustments; and operational inefficiencies of public entities. 

Although BPC`s charter explicitly stipulates that it should be run commercially, it has not been allowed to do so. The subsidiary companies of BPC have, however, been making some profits. The oil marketing companies have been earning profits based on their marketing margins, while they have not been required to employ much capital or be subjected to any financial risks, like BPC. Petroleum prices were raised in January, 2003 - by 18 percent for diesel and petrol, 11 percent for fuel oil and 13 percent for aviation fuel, while kerosene prices have been kept unchanged.

The financial viability of BPC has been affected by inefficiencies and high costs in some areas of petroleum operations. Some of these inefficiencies are listed below:

 The processing loss, including gas used, is substantial, equivalent to 3.5 percent of crude oil processed, and this is linked partly to the low efficiency of the old refinery.

 The freight cost of importing crude oil, mostly from the Middle East, including lighterage charges for domestic refining at ERL, has been on average about $14/MT in recent years, or some $8-10/MT higher than the freight cost of importing finished POL products from other source (e.g., from the Singapore market). This high cost is linked to limited capacity of Chittagong Port to handle lame tankers. On an import volume of 1.5 million ton of crude oil, this translates to an additional freight cost of about $12-15 million annually. The lighterage charges paid by BPC to the Bangladesh Shipping Corporation in dollar terms are higher than competitive rates, but BPC has been constrained in procuring these services competitively and under cost-effective arrangements.

 Distribution losses of finished POL products are also high, possibly up to 1 percent of distribution, costing around Tk. 1 billion annually. These appear to be on the high side, compared to what might be possible with competitive and efficient private participation in marketing, as in most other countries.


As in many other countries, petroleum products are taxed highly in Bangladesh for a number of reasons. The main considerations are augmenting budgetary revenues with ease of collection and indirect recovery of road user charges. Indirect tax revenues on POL products, in the form of import tariffs, VAT, supplementary duty and surcharge, have contributed about Tk. 32 billion annually in recent years, equivalent to 13 percent of budgetary tax revenues. The domestic retail price of major petroleum products -- diesel, kerosene, jet fuel and petrol - have been set significantly above the import parity price. The differential between the two reflects indirect taxes, marketing and transportation costs, and BPC`s profit margin. 
The scope for improving the efficiency and transparency of petroleum pricing and taxation should be reviewed and the structure of petroleum taxation is worth re-examination. Excessive end-user price of petroleum products affects the cost of production (e.g., cost of diesel for irrigation, or cost of gasoline and diesel for transportation of export and import consignments) and hence external competitiveness of the economy. The possibility of smuggling of POL products has been put forward as an argument for keeping Bangladeshi prices in line with price levels in neighboring India. The extent to which the structure of petroleum prices in Bangladesh should be driven by possible distortions in the Indian price structure should be subject to careful evaluation. 

Inadequate price revision has contributed most to BPC`s mounting losses and BPC has effectively financed a sizable part of the indirect tax payments on petroleum import and production to NBR through borrowing at high interest rates from commercial banks, rather than through petroleum revenues. Given the manner in which BPC financed its operations, it is clear that a sizable part of the Government's tax revenues from the petroleum sector was effectively borrowing from the banking system. This outcome has revealed the weakness of the petroleum pricing policy, including the inadequate transparency of resource flows between the budget and the petroleum sector, linked to the ad hoc administered pricing system. 
Liberalization of the sector policy regime to allow competitive private participation, in all areas of petroleum operations would lead to efficiency gains without affecting petroleum revenues. Private participation could start with downstream petroleum market activities. An appropriate regulatory framework would help to ensure adequate competition, and protect consumers' interests, including safeguarding safety and quality standards. A realistic market- based pricing .mechanism would need to be put in place. The petroleum downstream market should ultimately be made fully competitive, in which case there would be no need for price regulation. A significant benefit is that petroleum sector reforms would relieve the exchequer from the financial risks arising from the loses of public entities due to movements in world market prices of oil, and operational inefficiencies associated with state monopoly. 

Petroleum pricing should be deregulated by moving to a flexible and market based pricing system in place in many countries. This would entail putting in place a system of periodic adjustments of domestic POL prices, linked to the movements in world market oil prices, 

The passage of Energy Regulatory Commission Act and establishment of the Bangladesh Energy Regulatory Commission are welcome developments. The challenge now will be to provide the newly established energy regulatory entity with adequate independence and capacity so as to play an effective role in promoting developments of the energy sector particularly through efficient pricing and safe guarding quality of services. 

Dilemma in price adjustment for petroleum products
A few months back when the country witnessed blood spill sequential to load shedding, the petroleum price hike was probably an action out of tune. Before the Kansat episode could fade out from the mind of the general people, the issue of price increase of diesel and petrol did shake the mind of the public at large. Not because that the international price of crude was unabatedly taking a steep turn, the Government suddenly woke from the deep slumber under which it allowed to continue with the old tariff of petroleum products. No action what so ever was taken by the respective ministry on price adjustment of diesel and kerosene on the plea that it would affect the farmers. The issue was more with the government than with the farmers as they were afraid of the people to have the cheap popularity with the lowest possible prices for petroleum products in the world for all including the rich people who could afford to pay higher prices for petroleum products. 

When the graph of price hike of crude oil successfully crossed the $70 per barrel mark, the concerned officials felt that it was time to act. As the process was set in motion, there has been talk in different forum as to the justification for raising the prices of different petroleum products. The then finance minister took the trouble of inviting leading economists to help him get out of the problem. The suggested measures by the economists to raise the price of Petrol and Octane most, enhancing the price of diesel and kerosene by a minimum reportedly angered the then Energy advisor who opined that the economists have no knowledge about petroleum operations in the Country. According to him, the octane and petrol shares only 10% of the total products while diesel kerosene bears the rest. 

But why the GOB chooses to take all the trouble of keeping the petroleum business within its authority. Is it that it has been a milking cow for the GOB since long without caring that the mountains of debt that have been depositing with the careless attitude of pricing policy of the Government? 

BPC, the official crude importer of the GOB, had an outstanding loan of Tk. 12,000 crore with interest of below 5%. Without paying this loan BPC was again taking loan of $200 crore at an interest rate of 14%. With these state of affairs BPC incurred a cumulative loss of Tk. 5,804 crore till date but it gave the Government exchequer Tk. 34,833 crore during the same period. So who runs the show any way? When the internal transfer of debt liability was no more feasible, the bosses were shaken and started loudly talking about the abnormal crude price in the international market as the root cause of price adjustment as if it started from yesterday.

According to the energy experts the share of petroleum products in the energy sector is only 20%. Now with such a share if the situation turned so bad then think of a situation when the natural gas will not be available either due to its normal depletion or accelerated drying up of the reservoir due to suicidal decisions like export or giving the gas at throw away price to an investor who might lure that with his foreign direct investment, milk and honey will start flowing in the country. 

Energy sector is in a very bad shape in Bangladesh. It is the cheap gas that has made the policy makers blindfolded about the consequences that will happen on completion of the facilities derived from natural gas. The economy has failed to take advantages of the benefit of natural gas to make the economic footing strong enough to stand on it sown feet even without natural gas. Unless the economy is strong enough to import fuel at international prices or new sources of energy are found within the country, Bangladesh economy finishes with the closure of the gas fields. Sooner it is understood the better.

A small ray of hope is however seen with the discovery of high grade bituminous coal in the north western part of the country. It is however again attacked by the virus of foreign investment. To develop the coal deposits in full, the foreign investment would be of high magnitude which would call for higher rate of production in the proposed coal mine without caring for socio environmental issues. The domestic market being small there is pressing need to consider export of coal to justify such direct foreign investment. But then when one needs its own energy on what ground it will allow export. No sane person shall agree to sell a thing owned by a family to be required by his family and then compelled to buy back the same thing for the family at a higher cost at a later date. Even with coal it will not fully meet the requirements of energy need of Bangladesh if we take the target ‘Electricity for All by 2020’ in all seriousness.

Coming back to petroleum products, the methodology of overcoming the crisis of pricing has been on forefront of discussions in different forum. While the then Energy advisor dismissed the idea of equalizing the problem by increasing more the Octane and Petrol price, and some bankers of the country has strongly suggested that it is the octane and petrol users who should foot the bill and government should not give any subsidy, the theory was very interesting and under such assumptions ; it will be very good to set the octane price at Tk200 per liter and Petrol at Tk 199 per liter so that there is adequate contribution by the car owners and poor people are relieved of enhanced price as a result of $70 + per barrel of crude. This will also have another very good impact that no smuggling of these products will take place and to keep other products within the country one may just increase the price by one taka above the prices prevailing in the bordering areas. So that no one would be interested in smuggling of petroleum products.

Energy pricing is not as easy as some people may think. Are we aware that in the pricing of primary fuel we have never considered the intrinsic value of gas or coal .With the blessing of administered price one has gone scot-free with any number but if one is serious about the pricing one has to take the value of the resource itself. One of the reputed economists in an article in the press has opined that economist know price of all things but they seldom understand the value of a thing. Energy is probably one of these items. It can be said without any reservation that petroleum, gas even electricity pricing in Bangladesh has been very chaotic. 

It has been mentioned time and again that these products are being sold at a price, on many occasions, below the cost of production or procurement. This leads to a vital question as to why such luxury has been allowed to continue. In these days of competition one must pay for what he consumes or enjoys. No lunch is free. In that case why on earth any body should be given an item required for his benefit at the cost of others. We have been knowingly supporting a state of affairs which have been totally artificial. Such a situation escaped due attention because one could have access to the foreign loan or local borrowing. But as with the personal life, borrowing does not help for a long time and when one robs Paul to pay Peter, which might work for some time but at the end of the game he is destined to be behind the bar. 

These happenings in the energy sector are probably working as alarm clock to make the people wake up to see the reality. No government subsidy shall work. One must realize that with per capita income of say $400 it is impossible to lead a life one sees in some section of the population in Bangladesh.

Petroleum Policy in the Light of Energy Policy in Bangladesh
There has been an energy policy adopted by the then Government in the year 1996 and this policy has incorporated the Petroleum Policy. This Petroleum Policy deals with the oil and gas exploration and development. In a separate section of the policy the issues related to oil or petroleum products have been dealt with. The salient features of the policy so far it relates to Petroleum products are reproduced below:- 

Oil Refining

i) Private sector will be free to set up new refineries,

ii) New marketing companies linked with investment in development of infrastructure (storage, pipelines, wharves and other facilities) will be allowed,

iv) Joint venture companies will be encouraged,

vi).Refineries will be allowed to import required crude oil after lifting locally produced crude oil allocated from local source(s),and foreign exchange for import of crude oil will be made available, .

vii) Refineries will be free to sell their products to any marketing company or directly from the plant to any customer(s) within the country, and

Lubricating Oil
i) Lubricating oil products will be free from price control,

ii) No permission will be required for establishing lubricating oil blending plants, grease and wax manufacturing' plants subject to registration for quality check,

iii).investors will be free to procure raw materials from local or foreign sources,

Marketing and Distribution
i)In consultation with the Government the prices of products will be fixed and equalized for main installation and depots at various places in the country and freight will be added beyond these points,

ii) Subject to uniformity in coverage development of retail outlets will be done by the marketing companies and individual investors based on environment, explosives. and safety rules, 

iv).the private sector will be encouraged to invest in infrastructure like pipeline(s) including common carriers, storage, and distribution/handling facilities, 

v) Private sector may also be involved in phases in import and distribution of POL.

Liquefied petroleum Gas (LPG)
LPG may be imported for meeting the demand of the country.

CNG in Transport
The use of CNG in all types of road and riverine transports including locomotives replacing motor spirit and diesel will be commercialized. No duty, sales tax or surcharges will be levied on equipment imported for compression and refueling of natural gas and for conversion of vehicles. Local as well as foreign private capital will be encouraged to invest in all phases of CNG business.

It is seen from the Petroleum policy as adopted earlier by the Government that many issues which are bothering the operations of the petroleum sector have duly been addressed in the energy policy. But unfortunately the energy policy has become a document to gather dust and not many decisions are being implemented not only in the petroleum side, but also with the gas and power sectors as well.

It may be appropriate to update the energy policy and naturally the petroleum policy in the light of the current international events in the energy sector, globalization, security of supply of energy, regional trading of clean fuel etc. One must then follow the policy to reap the benefits from such document prepared through the joint efforts by the energy experts and the Government officials of the country

Petroleum Products Pipeline
A new approach to transferring Petroleum products from the storage tanks to different locations could be the Pipeline transportation to avoid hazards and reduce costs of carrying those through road and waterways. At the moment condensate, an associated product in the gas fields, is carried from Sylhet, Kailashtilla-Beani Bazar to Ashuganj (170 km) through 6" dia condensate pipeline. The pipeline operation has no technical problem. The only disadvantage experienced in such pipeline is attempts to steal the low pressure condensate.

Pipeline transportation of petroleum products is not a new idea. Many countries of the world use this mode of transportation for oil products. While the road transport involve thousand of lorries with associated investments and problems, pipeline transportation offers much easier, quicker and efficient way of bulk transport of petroleum products.

Petroleum products pipeline may be implemented in phases. The first two transmission lines may be (a) from Chittagong ERL and companies' tank terminals to Dhaka (Godnail and Fatullah) and (b) from Dhaka to Elenga extended upto Baghabari via Sirajganj. In the second phase pipelines (a) from Ashuganj to Dhaka and Ashuganj to Baghabari (b) from Baghabari to Bogra, Rangpur, Dinajpur and Rajshahi. These may be followed by a pipeline from Chittagong to Khulna via Barisal. From Baghabari another pipeline may stretch southward connecting Kushtia, Faridpur, Jessore and Khulna.

The pipeline would relieve the costly road transport system for uses by other commodities. The road will become less hazardous and the trouble free operation free from threats of hartal, Tank & lorry owners' strike, pilferage, ransom and extortion on the roads.

A detail techno economic feasibility study needs to be conducted to ascertain the viability of the project. This study could also be the backbone for financing the project from both local and international sources. The project should be taken up immediately for implementation.

Gas to Liquid (GTL)
Natural gas is vital for the national economy of Bangladesh. It is providing the major thrust in the economic development through supplying primary fuel as prime mover to the power sector. While some gas fields are also the sources of certain petroleum products, gas itself could also be transformed into liquid hydrocarbon to facilitate complementing the need of liquid fuels. Many countries are now implementing projects that convert gas to liquid (GTL).

GTL technology is useful for converting synthesis gases derived from carbon-bearing materials, either natural gas or liquids or solids into synthetic liquid hydrocarbons. The products include clean-burning diesel fuel, naphthas used for making gasoline and certain petrochemicals and specialty products such as petroleum waxes, petrochemical feedstocks and synthetic lubricant base oil.

The liquid hydrocarbons resulting from GTL process are similar to analogous products derived from crude oil refining. Tests of GTL derived diesel fuel show it has significant environmental benefits over crude oil hydrocarbons resulting from the way diesel fuel is produced, Unlike conventional diesel, this diesel fuel is free of sulfur, so it releases no sulfurous oxide into the atmosphere, and it has no chemical compounds known as aromatics, which are believed to be carcinogenic.

GTL process takes advantage of under-utilized resources, such as natural gas that can't be brought to market for one reason or another-it may be too remote or it may be associated with oil production, but there are no pipelines; it can also convert refinery bottoms into useful products. In the past this was used as fuel for boilers. But due to the increasing sulfur quantities and other heavy metals in the crude oils that we are importing, it can't be used as boiler fuels and must be disposed of in some fashion. The fuels that are manufactured meet all standards for use in existing and futures engines and meet all the requirements for sale in the commercial environment. They are sulfur- and aromatic-free, and contain no heavy metals.

This technology was originally developed in the mid-1920's and was utilized by the Germans in World War II for their war machine to make gasoline and aviation fuel. Then it sparked in interest over the last twenty years. Major oil companies have become involved, such as Shell, Exxon and British Petroleum and several others. Because of the spike in oil prices recently, which will be a fact of life for the foreseeable future there has been a tremendous amount of increased interest in this field.

Bangladesh should initiate a project to convert gas to liquid in the private sector or under a joint venture set up to move ahead in such new field of gas utilization. With the soaring prices of Crude such project could be very attractive and economically beneficial for the country.

It is Time to Turn Coal into Black Gold
It goes without saying that petroleum products play a vital role in the energy mix in any country. No matter how strongly it is attempted to replace some petroleum products by other fuels, there are areas where these petroleum products will be invariably be needed. But with the ever increasing price of crude oil, it may be judicial to see if other fuel could be transformed into liquid hydrocarbon. Gas and coal probably fit in for such situation. Coal has recently been taken up seriously by many countries to get diesel and other fuel components.

Coal-rich and keen to curb its rising dependence on imported oil, many countries including China and India are playing leading role in promoting decades-old coal liquefaction technology. China expects alternative-energy projects like coal liquefaction to save 38 million tons of annual oil consumption during the Eleventh Five-Year Plan period, which runs from 2006-2010. This is equal to around 10% of China's total projected oil demand in 2010. The aim is to find a use for the country's abundant reserves of high sulfur coal, which are unsuitable for burning in power stations, while at the same time reducing the country's growing dependence on imported crude oil. Coal liquefaction converts low-quality coal into synthetic oil products, such as methanol and dimethyl ether removing much of the polluting sulfur in the process. Methanol can be used directly as a fuel or further converted into gasoline, while DME, currently used as a propellant in aerosol spray cans, can be handled like liquefied petroleum gas for power generation, as a substitute for diesel and LPG or as a synthetic gasoline. 

Top ten countries by recoverable coal reserves
(million short tons)
1 US                               267,312 
2 Russia                         173,074 
3 China                           126,215 
4 India                            101,903 
5 Australia                      86,531 
6 South Africa                 53,738 
7 Ukraine                        37,647 
8 Kazakhstan                  34,479 
9 Serbia and Montenegro 18,288 
10 Poland                       15,432 

China began to turn its attention to upgrading coal liquefaction technology in the early 1980s, when it first began to import oil and the government realized that its days of self-sufficiency were numbered. However, while experiments in the downstream conversion of coal liquids into usable products have proven successful, China's first primary coal liquefaction plants did not work as smoothly as expected. In Pingdingshan, in central China's Henan province, a 500,000 metric tons liquefaction plant launched in 1999 failed when local coal proved to have too much sulfur and ash content to be suitable for liquefaction. 

Bangladesh with its reasonable reserves of high grade bituminous coal, may take up a project in a joint venture with any country who are experienced in this particular area .it is reported that India is also working on the project. One has to be in touch with the latest developments on the ideas that could be useful for Bangladesh and join hands to proceed even at the pilot stage to reap benefit in due course. 

Some Gas Fields in Bangladesh are Mini Oil Fields
Gas sector in Bangladesh is an important contributor of petroleum products in the country. Some gas fields which are rich in natural gas liquids produce a reasonable quantity of petroleum products some of which are separated by the respective companies and marketed through oil companies. Some petroleum products components however pass through within the gas stream and burnt along with the gas at the consumers end .NGL is one of such components which could be further separated making a meaningful addition to the availability of LPG and diesel within the country.

Natural Gas Liquid (NGL) is a valuable co-product of natural gas production. NGL is not present in all gas fields and the amount of recoverable liquids varies considerably from field to field. Depending on the quantities and economics, NGLs are recoverable at either the source of production or at central processing plants-often referred to as "straddle plants".

NGLs include two main product groups:
Liquefied Petroleum Gas (LPG) which includes: Ethane (C2), Propane (C3), Butane (C4); and Condensates which include Pentane plus (C5+) that can be fractionated to obtain gasoline, kerosene and high diesel.

NGL stands prominently in the international Hydro carbon business. In a recent survey, USA was considered as top producer of NGL with 77,248,000 gallons per day securing 30.2% of the world production. Saudi Arabia was in second position with 37,004,000 gallons per day having 14.5% of the global production. 

There could be some very positive developmental impacts for an NGL extraction and fractionation plant. In addition to job creation potential, this facility could 

 Produce sufficient MS and HSD to significantly reduce the country's dependence on imported crude
 Reduce the need to import LPG
 Potentially create an exportable quantity of LPG
 Supply sufficient LPG to a regional bottling plant in the western zone 
 By making LPG available to the western zone the burning of biomass could be dramatically educed, and
 Reduce the harmful effects of flaring on the environment by recovering LPG

Over the years there have been a number of proposals to develop a central plant which would fractionate mixed NGL s in order to increase the yield of the LPG`s and liquid transportation fuels for regional use and distribution
.
Bangladesh is a net importer of LPG. Some LPG is produced at the Kailashtilla LPG plant and some LPG is produced at the Chittagong Refinery. If a centralized plant were to be developed to increase the LPG recovery from the gas, imports could be reduced or eliminated lessening the pressure on the foreign exchange.