Originally published in The Financial Express on 20 July 2023
At least two spot liquefied natural gas (LNG) suppliers have given Petrobangla three working days to clear their unpaid bills totalling around US$113 million or face supply halt, said sources.
The spot suppliers who gave the cut-off time over the payment backlog-purportedly for dollar dearth with the state-run importer of the fuel–are French TotalEnergies and Singapore-based Gunvor.
Of the two, Gunvor in a recent letter to Petrobangla threatened to cease spot LNG-cargo supply for the months of July and August unless the overdue payments are cleared within three working days.
Gunvor Singapore Pte has already been awarded two spot LNG cargo- delivery contracts for late July and mid-August at US$12.98 per million British thermal unit (MMBTu) and US$13.85 per MMBTu respectively for delivery to the Moheshkhali floating storage and re-gasification unit (FSRU).
Both Gunvor and TotalEnergies did not take part in tendering to supply LNG from the spot market for late August due to concern over payments, sources said.
The two suppliers also forewarned of adjusting the unpaid amount from the standby letter of credit (SBLC) kept by Petrobangla with state-run Agrani Bank Ltd as security money against LNG trading with the suppliers.
“If Petrobangla fails to make regular payment against LNG imports to the suppliers,” sources say, “it is required to make payment with interest at the Secured Overnight Financing Rate (SOFR) plus 4.0-5.0 per cent on the overall import bills.”
TotalEnergies has unpaid and overdue bills amounting to around US$ 84 million, while Gunvor has around US$ 29 million to be cleared by Petrobangla against LNG purchases from the global spot market.
TotalEnergy’s payments were overdue by around one week and three weeks respectively for its two spot LNG cargoes, while Gunvor’s payments were overdue for one week, said the sources.
TotalEnergies’s unpaid two spot LNG cargoes were delivered to Moheshkhali FSRU during May 16-17 and May 25-26 at US$13.33 per MMBTu and US$13.28 per MMBTu respectively. Gunvor’s unpaid spot LNG cargo was delivered on June 8-9 at around US$ 12.47 per MMBTu to Moheshkhali FSRU.
According to Master Sales Agreements, signed with the spot LNG suppliers, the state-run entity is obligated to make payment within 15 days of delivery.
According to the sources, another spot LNG supplier, Vitol Asia, also has unpaid bills to be cleared by Petrobangla.
The Petrobangla chairman was not available for comment on the matter.
Sources said apart from the spot LNG suppliers, Petrobangla has been struggling to make payment to long-term suppliers, too.
The importer has not been able to pay regularly to the two existing long-term suppliers – Qatargas and Oman Trading International (OTI), currently named OQ Trading – against LNG purchases, according to market insiders.
It owes around US$ 150 million to Qatargas, and US$ 80 million to OQ Trading.
The state-run oil, gas and minerals corporation has also been struggling to make regular payment to US oil-major Chevron for gas purchases since September 2022, and it currently owes over US$ 200 million to the firm.
To ride out the crisis and settle the dues up to September 2023, Petrobangla Chairman Zanendra Nath Sarker, however, earlier had sought financial assistance worth Tk 71.81 billion from the Ministry of Power, Energy, and Mineral Resources (MPEMR).
The state energy corporation also wrote to the Bangladesh Bank governor for support in clearing invoices against LNG purchases by way of providing US dollars to the commercial banks concerned.
Energy officials say Bangladesh “has never defaulted on paying LNG-import bills since the initiation of LNG import in 2018 and gas bills to international oil companies (IOCs), including Chevron”.
“Global economic turmoil caused by the ongoing war between Russia and Ukraine, which has led to swelled prices for various commodities, including oils and grains, is the main cause of the country’s eroding repayment capacity,” says one official
According to the sales and purchase agreement (SPAs) between Petrobangla and Qatargas, the state-run entity is obligated to make payment within 15 days of LNG delivery.
Petrobangla has the liberty to make LNG-import payment to OQ within 25 days of import, as stated in the SPA.
Failure to make regular payment against LNG imports will push the agency to make payment with interest at SOFR plus 4.0-5.0 per cent on the overall import bills.
The demurrage payment is compounded quarterly.
Several months ago, Petrobangla had failed to pay the suppliers on at least a couple of occasions but ultimately had to pay demurrage only to Qatargas, amounting to around US$ 350,000, according to sources.
However, this was the first incident of paying demurrage to any supplier since Bangladesh began importing LNG around five years ago.
According to sources, the government has to pay LIBOR plus 1.0-1.5 per cent on overall gas bills if it fails to make regular payment to IOCs for gas purchases.
Although Chevron has claimed demurrage due to delayed payment, sources said, Petrobangla has not yet paid any demurrage to the US company.
Sources said until several months ago, the payment crisis had not affected Petrobangla’s LNG import as it started to ramp up spot procurement in 2023.
To ensure uninterrupted gas supply to industries and power plants, the government issued an executive order raising domestic gas prices by up to 178.88 per cent, effective February 2023.
Some officials believe Bangladesh is prioritising payments for LNG procurements to keep businesses satisfied.
“Petrobangla is not to blame for the dues to the LNG suppliers and the IOCs,” Petrobangla Chairman Zanendra Nath Sarker earlier told the FE.
“We wrote to the central bank to facilitate payment to LNG suppliers and Chevron,” he added.
Bangladesh has been facing an acute dollar crisis since the beginning of the Russia-Ukraine war in February 2022. The country’s foreign-currency reserves dropped to around US$ 23.57 billion following calculation in line with the International Monetary Fund (IMF) matrix mid-July from a record US$ 48.6 billion in August 2021.