Introduction
Bangladesh, facing financial challenges, is set to address its outstanding energy bills to maintain stability and attract foreign investment ahead of the next general election in January 2024. The decision to clear the debts comes following a directive from Prime Minister Sheikh Hasina.
The country aims to pay approximately $960 million per month starting from July to settle debts with LNG suppliers, international oil companies (IOCs), and power plant owners. In this article, we explore the payment structure and Bangladesh’s efforts to seek support from international lenders while taking measures to bolster its energy sector.
Clearing Outstanding Payments
To ensure uninterrupted natural gas supplies, the Power Division under the Ministry of Power, Energy, and Mineral Resources (MPEMR) will receive $160 million per week to settle debts with power plant owners.
Simultaneously, $80 million will go to the Energy and Mineral Resources Division (EMRD) for payments to LNG suppliers and IOCs. This significant financial commitment demonstrates Bangladesh’s determination to stabilize its energy sector and ensure continuous electricity supply.
International Lenders’ Support
Bangladesh seeks the support of global lenders to avoid energy supply disruptions ahead of the scheduled elections. Despite facing financial constraints, the country is determined to settle its energy bills in a timely manner.
To this end, Petrobangla, the state-owned energy company, is in discussions to borrow approximately $500 million from the Islamic Trade Finance Corporation. This move indicates the nation’s commitment to resolve financial challenges and maintain energy stability.
Addressing Debts and Attracting Foreign Investors
The outstanding payments owed by the government, including $2.4 billion to private independent power producers, $475 million for electricity imports from India, $350 million to gas companies, and $320 million to LNG suppliers, are being prioritized for resolution. Clearing these debts is crucial to foster a stable energy environment and encourage foreign investment in the sector.
Furthermore, Bangladesh is taking proactive steps to attract foreign investors. The cabinet committee on economic affairs recently approved the country’s first-ever Brent crude-linked model production sharing contract. This new model, based on a profit-sharing formula, offers enhanced output shares to investors and allows companies to export natural gas after meeting domestic demand.
The hydrocarbon price in the model contract is linked to the same benchmark used to purchase LNG. These measures indicate Bangladesh’s commitment to creating a conducive environment for foreign investors in the energy sector.
Conclusion
Bangladesh’s decision to clear its outstanding energy payments is a significant step towards stabilizing its energy sector and ensuring continuous electricity supply. Prime Minister Sheikh Hasina’s government is actively seeking support from international lenders to overcome financial challenges.
Simultaneously, the country is taking measures to attract foreign investors, as evident in the newly approved Brent crude-linked model production sharing contract. With these efforts, Bangladesh aims to achieve breakthroughs in developing its energy sector and sustaining its growth trajectory.