Bangladesh gas tariff spike pushes up costs for new industries

New industries in Bangladesh will have to count additional costs for natural gas consumption after the country’s energy regulator raised the natural gas tariff for such industries and captive power plants by 33.33% on average with effect from April 13th.

The Bangladesh Energy Regulatory Commission (BERC) raised the gas tariff for new industries and captive power plants following a late February public hearing, neglecting protests and opposition from businesses and rights groups, market insiders said.

The tariff for new industries has been fixed at Taka 40/ cubic meter from a previous Tk 30/cubic meter and captive power plants at Tk 42/ cubic meter from a previous Tk 31.50/ cubic meter.

The BERC’s chairman Jalal Ahmed announced the new tariff at a press briefing at the BERC auditorium in the capital Dhaka.

Captive power plants are small gas-fired power plants owned by different private industries, which are usually run by factory owners themselves to meet the power demands of their factories in the absence of power from the national grid.

As per the BERC’s tariff hike directive, the new industries and captive plants, which already attained commitments or demand notes for raising gas loads in their existing factories, must have to pay 50% of the new gas commitments at previous rates.

The remaining half would have to be paid in accordance with the new tariff rates.

In addition, the owners of existing industries and plants will have to pay the tariff as per new rates for utilising additional gas above their approved loads in their existing factories, the BERC chairman said.

Gas tariffs for all existing consumers including power plants, industries, fertiliser factories, CNG filling stations and tea estates remain, however, unchanged.

LNG import costs

BERC hiked the gas tariff after holding a public hearing on the demand for raising the tariff in line with LNG import costs.

State-run Petrobangla, and its subsidiary gas marketing and distribution companies, had sought the hike by up to 152.40% in their submissions placed in January.

Bangladesh has been struggling to clear LNG bills to suppliers over the past couple of years.

To ensure payments to suppliers, the country’s Energy and Mineral Resources Division under the Ministry of Power, Energy and Mineral Resources, recently sought around $1 billion from the Ministry of Finance (MoF) by June, a senior MoF official told Gas Outlook.

Bangladesh has never defaulted on gas bills to IOCs and LNG payments since the initiation of gas imports in 2018, a senior Petrobangla official said.

The global economic turmoil caused by the ongoing Russia-Ukraine war, which has caused the prices of various commodities, including oil and grains, to spiral, is the main reason for Bangladesh’s eroding capacity to make payments, he said.

“We have raised the gas tariff at a tolerable level for new industries and captive power plants although the demands from the state-run entities were for raising further by over 150%,” said the BERC chairman at the press conference.

Mr Ahmed could not say whether the tariff hike would impact future investments, but said that it would create an opportunity to look for alternative energy sources like liquefied petroleum gas (LPG) and solar power for future industries.

If the tariff had been hiked as per the demands of state-run gas entities, Petrobangla could fetch around Tk 32.40 billion but with the 33% hike Petrobangla would be able to get around Tk 11 billion additionally, he expected.

The BERC chairman could not say about the amount of subsidy Petrobangla would require due to the new gas tariff, which is less than their expectations.

But the subsidy requirement would decrease, the BERC chairman expected.

Renowned Bangladeshi rights group – the Consumers Association of Bangladesh (CAB) — had boycotted the public hearing, while business leaders and associations had opposed the tariff hike move.

“Having different gas tariffs for same type of consumers is discriminatory and violation of the basic rights as mentioned in the constitution,” an energy adviser of the CAB, Professor M Shamsul Alam, told S&P Global Platts, reacting to the tariff hike.

Petrobangla could save around Tk 35 billion if double taxation against imports of expensive LNG could be removed, he said.

The tariff has been hiked by the BERC arbitrarily bypassing the oppositions raised during the public hearing, he alleged.

It went against the spirit of July-August uprising in Bangladesh, which toppled the previous Awamiu League government and was a continuation of the ‘previous BERC,’ which was dominated by the previous government, professor Alam alleged.

New industries

Bangladesh’s gas-guzzling export-oriented sectors might face a slump in export earnings due to uneven competition after the gas tariff hike for new industries, said Mohammad Hatem, the President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

No new industries would be established fearing uneven completion with the existing ones, he feared.

Hatem urged the interim government to take necessary steps for checking gas pilferage.

In late February 2024, the South Asian country’s gas-guzzling power plants and all types of electricity consumers started counting hikes in gas tariffs as the then- government had raised it by Tk 0.75/cubic meter, or 2.5%, to Tk 30.75 (0.26 euros)/cubic meter for power plants and by Tk 0.75/cubic meter, or 5.36%, for captive power plants run by industries for their internal consumption.

A year earlier, in February 2023, the Bangladeshi government had raised gas tariffs for power plants by 178.88% cent to Tk 14/ cubic meter, from a previous rate of Tk 5.02.

Gas tariffs for small and cottage industries were raised by 178.29% to Tk 30/cubic meter from a previous Tk 10.78.

Rates for captive power plants, small power plants and merchant power plants were raised by 87.50% to Tk 30/cubic meter from a previous Tk 16.

The hike for big industries was 150.41% to Tk 30/ cubic meter from a previous Tk 11.98.

For medium-category industries, the gas tariff was hiked by 154.66% to Tk 30/ cubic meter from a previous amount of Tk 11.78.

Meanwhile, commercial consumers, including hotels, restaurants and similar business outlets were to pay 12.80% more.

Bangladesh initiated importing LNG from international markets in 2018 and it has planned to augment LNG imports in the coming years to meet the mounting natural gas demand of different sectors, especially of industries and power plants.

(Writing by M Azizur Rahman; editing by Sophie Davies)