Empowering Bangladesh: Clearing Energy Bills and Revamping Upstream Contracts Ahead of Elections

Nasrul Hamid, the state minister for energy and mineral resources, told reporters at the end of July that Bangladesh would have to start paying its debts to owners of domestic and foreign power plants, international oil companies, and LNG suppliers on a monthly basis of about $960 million starting in July. A total of $240 million will be paid each week, of which $160 million would go to the Ministry of Energy and Mineral Resources (MPEMR) Power Division to pay off the debts of various power plant owners and $80 million to the Bangladesh Energy Regulatory Commission (BERC). He went on to say, “Compensation will be disbursed to both the LNG vendors and the International Olympic Committee (IOC).”

Hamid stated that the decision was made in response to recent instructions from the Minister in charge of Foreign Affairs and Prime Minister Sheikh Hasina.

Nath Sarkar had written a letter to MP EIMAR outlining the necessity of repaying loans to LNG providers, both current and long-term, as well as to IOC, in order to guarantee a continuous supply of natural gas.

The Power Division of MP EIMAR recently asked $5.921 billion to ensure a steady supply of electricity for the fiscal year 2023–24, which begins in July 2023.

Bangladesh hopes to pay off its energy debt with help from international lenders before the impending general elections in January 2024, despite its difficult financial circumstances. Talks have already begun between Petro Bangla and the Islamic Trade Finance Corporation on a $500 million loan. One of the Islamic Development Bank’s members.

In the meantime, Bangladesh’s cabinet committee on economic issues authorized the country’s first Brent crude-linked model production-sharing contract earlier this week. On this basis, plans are being developed to begin bidding rounds for hydrocarbon exploration in sovereign waters. According to a top Petro Bangla officer.

Bangladesh produced the Offshore Model Production Sharing Contract 2023 in the latest upstream bidding cycle to attract investment from IOC. The new PSC model, which replaces the existing one in 2019, is intended to lure foreign investors to return because it is based on a profit-sharing formula rather than a production-based formula.

This means that businesses will be able to lower costs, investors will have a greater stake in production, and businesses will be able to export natural gas after meeting domestic demand.

Petro Bangla will buy natural gas from foreign exploration contractors for three months at 10% of the average Brent crude price, with no ceiling, which is significantly higher than the current price of approximately $2.75/MMBtu at three times the Brent crude price, which is currently at $83/barrel.

He stated that Bangladesh’s new model PSC has integrated LNG purchases with a benchmark price that is not subject to price restrictions, which is employed in LNG procurement without any price constraint.

At present, there are 26 unallocated blocks and 22 offshore blocks in Bangladesh’s possession. The offshore blocks are divided into fifteen deepwater blocks and eleven shallow-water blocks.

Two of the shallow-water blocks, SS-04 and SS-09, are under PSC, with ONGC Videsh and Oil India from India conducting cooperative exploration. Chevron is exploring and producing natural gas in three offshore blocks, while Singapore’s Kris Energy is producing natural gas from block-9.

Deep-water drilling in Bangladesh suffered a setback when Posco International of South Korea withdrew from block DS-12 in 2020 after Petro Bangla refused better business terms.

Previously, during the 2012 bidding round, Petro Bangla offered three further deep-water blocks, DS-16 and DS-21, to a joint venture between ConocoPhillips and Statoil of Norway, but the companies withdrew before signing the production-sharing deal, alleging unfavorable commercial terms.

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