Energy & Power

Special Report
Sufferings for Power

EP Desk

CA For Strengthening BAPEX

Chief Adviser Fakhruddin Ahmed asked the finance and energy secretaries to jointly identify what kind of support could be given to Bangladesh Petroleum Exploration and Production Company Limited (BAPEX) in the next fiscal year.

He made the directive following a presentation before him where a BAPEX’s gas sale tariff of Tk 25 per thousand cubic feet for the next two years instead of a measly Tk 7 was recommended to help the company achieve break even.

The 90-minute presentation focused on BAPEX's financial problems and how the company could become a self-reliant exploration and production company through immediate and mid-term support from the government.

Prof M Tamim, Special assistant to the Chief Adviser for Energy Ministry, was present at the presentation ceremony.

Commencing its operation in 1989, BAPEX has only a couple of gas producing wells which supply 31 million cubic feet of gas a day. Successive governments made big promises about investing in BAPEX but in reality, none of those investments were made.

And low gas price for BAPEX is another major problem for development of the company. While BAPEX sales gas at Tk 7 per MCF, the international oil companies get close to three dollars (around Tk 200) per MCF of gas. The government's bulk sale price of gas is Tk 92 per MCF.

BAPEX Managing Director Muhammad Imaduddin in the presentation raised the issue of the gas tariff, saying that to make the company achieve break even, gas sale tariff should be raised to Tk 25 per MCF from existing Tk 7 for the next two years, and then to Tk 50. Presently BAPEX’s gas production cost is between Tk 25 and Tk 50 per MCF.

A senior BAPEX official said: If gas price is rationalized and interim support for exploration and development is given, BAPEX will no longer require the government's financing for its overhead expenditure from 2011. By 2014-15, the BAPEX will not even need any government support for any of its activities, he claimed.

In the meeting with the CA, the BAPEX also presented its plans to explore various hydrocarbon zones and undertake other works. These will require Tk 3,200 crore as investment in the next seven years. The schemes are: work over of Fenchuganj Well-3 and drilling a new well, procuring one work-over rig, undertake appraisal well drilling in Srikail hydrocarbon structure, development drilling on Saldanadi Gas Field, Begumganj Gas Field Development Project, drilling four exploratory wells in Block-8 and Block-11, Shailokupa Exploratory Well Drilling Project, Jaldi Exploratory Well Drilling Project and Sitakunda Exploratory Well Drilling Project. EP Desk

“Adjusting Petroleum Price a Must”

Finance and Planning Adviser sees no way for the government other than adjusting prices of petroleum products to resolve acute liquidity crisis of the Bangladesh Petroleum Corporation (BPC).

"We did not adjust prices of petroleum products as there were shocks on the economy due to a number of natural calamities last year. But, we will have to adjust the fuel prices at some point," Dr AB Mirza Azizul Islam told journalists after a joint meeting of the Ministry of Energy, Bangladesh Bank (BB) and BPC.

Objective of the meeting was to find ways to resolve the BPC’s financial crisis on the hike in petroleum product prices in international market in the last few months. The corporation's average monthly loss is Tk 700-800 crore.

"Subsidizing the petroleum sector for an indefinite period is undesirable," said the adviser.

The meeting, however, decided that the Ministry of Finance would provide further budgetary support to the BPC for the time being. The corporation recently sought Tk 1,000 crore from the ministry for petroleum import payment.

Officials, meanwhile, said BPC's borrowing from the Islamic Development Bank (IDB) at one percentage point more interest than the current rate is very much likely to get further support for such payment.

The BPC has been paying LIBOR (London Inter Bank Offer Rate) plus 1.75 percent on the IDB loans, but this bank set the interest rate not below 5.5 percent as the LIBOR rate is on the decline.

The meeting asked the BPC to negotiate on the IDB's new interest rate for borrowing $200 million at the enhanced interest rate.

"We have asked the BPC to start negotiation within a couple of days so that we can take advantage of the current rate," the Finance Adviser said.

Energy Ministry officials said LIBOR rate has been showing a decreasing trend for the last one year. The April 16 data of LIBOR showed that rate was 2.64 percent for 12 months, while it was 5.33 percent a year ago. "So the IDB set a new rate saying total interest rate would not go below 5.5 percent," an official said, adding that as per April 16 LIBOR rate, the interest rate on IDB loans stands at 4.39 percent.

Meanwhile, the meeting decided that the Bangladesh Bank will give the BPC more time for repaying the $300 million loans.

On the Standard Chartered Bank's $300 million loans to the BPC, the meeting was apprised that it would take another one and half months to get the money.
EP Desk