Bangladeshi state-run Petrobangla scraps LNG deals

As part of its crack-down on the deals inked under a special law, enacted by the previous authoritarian Awami League government for projects bypassing competitive tendering processes, Bangladesh’s interim government has already scrapped several deals saying contractors are not complying with contract terms, said sources.

The deals that got scrapped are all related to building new liquefied natural gas (LNG) terminal projects, they added.

More deals relating to long-term LNG supplies, coal-fired and high sulphur fuel oil (HSFO)-fired power plants are also under the lens of the interim government that took office on August 8th after the fall of deposed Prime Minister Sheikh Hasina’s regime.

In the first such move, the interim government axed the final agreement over building a 4.50 million mt/year (mtpa) capacity floating, storage and re-gasification unit (FSRU) in the first week of October.

State-owned Petrobangla cancelled the contract of Summit Group to build its second FSRU stating non-compliance of the contract terms, Petrobangla Chairman Zanendra Nath Sarker, told Gas Outlook on November 4th.

“We sent the termination letter on October 7th and requested the Summit LNG II Terminal Co. Ltd to collect performance bond from Petrobangla office during office hours at the latter’s convenience,” he said.

He added that the Terminal Use Agreement (TUA) and Implementation Agreement (IA) with Summit Group have been cancelled in line with an instruction from the Energy and Mineral Resources Division under the Ministry of Power, Energy and Mineral Resources.

Summit LNG II Terminal a subsidiary of the country’s leading privately-owned business conglomerate in the energy sector, was supposed to build an FSRU with a capacity of 4.50 MTPA on a build, own, operate and transfer (BOOT) basis by 2026 and continue operations for 15 years.

This is for the first time Bangladesh scrapped an FSRU deal with a contractor after inking a deal.

The contract cancellation letter, signed by Petrobangla Secretary Ruchira Islam, says Bangladesh Oil, Gas and Mineral Corporation, mostly known as Petrobangla, has cancelled the TUA in accordance with Clause 27.1 (a) (i) of the signed contract due to non-compliance and non-satisfaction of the key Conditions Precedent, which resulted in non-effectiveness of the signed TUA and IA.

The letter also pointed out non-compliance and non-satisfaction of one of the key Conditions Precedent — Performance Bond — for cancellation of the deals.

The TUA between Petrobangla and Summit LNG Terminal II Co. Ltd. and the IA between Energy and Mineral Resources Division and Summit LNG Terminal II Co. Ltd. were signed last March.

Referring to violation of the conditions precedent, a senior EMRD official said, as per the terms of the deals, Summit was supposed to deposit a performance guarantee worth US$20 million within 90 days of inking deals, meaning by June 28th this year.

But Summit deposited the guarantee money on June 30th, two days after the deadline, he said.

Summit LNG Terminal II Co. Ltd. inked deals to build a 170,000-cu m FSRU with 600 million cubic feet per day (mmcfd) send-out capacity, which was supposed to be Bangladesh’s 3rd FSRU, a senior Petrobangla official said.

Summit carried out a met-ocean survey over its second LNG FSRU and submitted a report to the state-run Rupantarita Prakritik Gas Company (RPGCL), he said.

When contacted, Summit Group confirmed that it received the termination letter from Petrobangla on October 7th.

“This evening (Monday) we have received a termination notice of the FSRU TUA. We believe this is unjustified and we will appeal for a review,” said Summit Group in a statement sent by its PR and Media Head Mohsena Hasan, issued on October 7th.

“Summit Group has a proven track record of developing long-term infrastructure projects in Bangladesh in a responsible and transparent manner,” it said.

“We can confirm that Summit executed the TUA and IA for its second FSRU project with Petrobangla and the government of Bangladesh on March 30, 2024 and executed the Sale and Purchase Agreement, or SPA, with Petrobangla on the same date for the supply of 1.5 mtpa LNG for a 15-year period, starting in October 2026,” it added.

Summit Group’s existing 3.75 mtpa FSRU — Summit LNG Terminal — located on Moheshkhali island in the Bay of Bengal, started commercial operation in April  2019 and will remain operational for 15 years until 2033 as per the existing contracts.

Excelerate Energy

One week after scrapping Summit’s deal, Petrobangla scrapped the term-sheet agreement with U.S.-based Excelerate Energy over building another FSRU near Payra seaport in southern Bangladesh, Sarker said.

The deal has been rescinded in line with the instruction of the EMRD under the MPEMR as the interim government decided not to ink any fresh deal under the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010 (Amended 2021), he said.

The scrapping of Excelerate Energy’s deal with Petrobangla happens to take place within a couple of weeks of former US ambassador to Bangladesh Peter D Hass having joined Excelerate Energy as a strategic adviser.

Petrobangla would need to extend the tenure of the term-sheet agreement and ink a TUA with Excelerate Energy to ensure its effectiveness, Sarker said.

On November 8th, 2023, the corporation had inked three agreements along with a term-sheet agreement with Excelerate Energy’s Bangladesh outfit under the special law bypassing competitive tender.

“The tenure of the non-binding accord was set to expire on November 7, 2024 automatically if the tenure was not extended,” said the Petrobangla top brass.

Under the term-sheet agreement to build an FSRU near Payra seaport, the U.S. firm was expected to clinch a contract to build a new 4.50 MTPA capacity FSRU, which would be its third floating LNG terminal in Bangladesh.

It would also have to lay an around 60-70 km re-gasified LNG-carrying subsea pipeline from the FSRU’s mooring facility near Kuakata sea-beach to southern Khulna to feed gas-guzzling industries, power plants and other consumers in the country’s southwestern region.

The other two agreements that Petrobangla inked with Excelerate Energy in November 2023 were long-term LNG sales and purchase agreement (SPA) and expansion of Moheshkhali Floating LNG (MLNG) terminal’s capacity.

Excelerate has already expanded the capacity of MLNG by 20% to 600 mmcfd send-out capacity from 500 mmcfd in January 2024, said a senior official of state-run Rupantarita Prakritik Gas Company (RPGCL).

The long-term LNG, SPA is linked with the expansion of the Excelerate’s FSRU capacity, said the RPGCL official, adding that Excelerate Energy did not charge an extra fee to raise its FSRU capacity as Petrobangla agreed to purchase LNG from it long-term.

Under the long-term LNG sales and purchase deal, Excelerate will supply 0.85 mtpa of LNG from January 2026 to December 2027 and 1.0 mtpa of LNG from January 2028 to December 2040.

It means Petrobangla will buy a total of 12 LNG cargoes each year during 2026 and 2027 and 16 LNG cargoes from 2028 until 2040.

Bangladesh will purchase LNG from Excelerate at around 13.35% of the three-month average Brent crude oil prices-plus US$ 0.30 cents/MMBTu, under the long-term SPA.

Matarbari Island terminal

The interim government also cancelled short-listing of bidders for building a 7.50 mtpa LNG terminal on Matarbari island in the Bay of Bengal in October.

The RPGCL had short-listed eight firms following floatation of international tenders inviting expression of interest from interested developers in 2019.

It also issued request for proposals (RfPs) to the eight short-listed companies in March 2021 for submitting their proposals within six months, and the deadline for submission of the RfPs continued to be extended until its cancellation last month.

The plan for building the 7.50 mtpa capacity LNG-terminal on land was made around a decade back, but the government could not arrange suitable land for the project until its eventual demise.

All these deals and projects were inked and undertaken under the Quick Enhancement of Electricity and Energy Supply Act (Special provision-2010), as revised in 2021, that provides for bypassing competitive tenders as a quick-fix solution, invented by the past government.

More projects at risk

A number of projects inked under the special law over the past 14 years are also at risk of cancellation or contract reviews.

A five-member national committee, constituted by the interim government, is currently reviewing more power and energy sector deals and sought data on 11 power plants approved under the past government.

The power plants are: Godda 1,496 MW coal-fired power plant, Adani’s Meghnaghat 583 MW dual fuel power plant, Baghabari 200 MW diesel-fired power plant, Patuakhali 150 MW HSFO-fired power plant, Ashuganj 150 MW HSFO-fired power plant, Manikgonj 162 MW HSFO-fired power plant, Kodda 300 MW HSFO-fired power plant, Mongla 100 MW solar power plant, Sundarganj 200 MW solar power plant, Lalmonirhat 30 MW solar power plant, and Sutiakhali 50 MW solar power plant.

Officials said that the committee selected these power plants for review as the costs and tariff rates are comparatively higher than all other existing power plants in Bangladesh.

After taking office, the new adviser for power and energy of the interim government, Muhammad Fouzul Kabir Khan, halted all negotiations, selections, and purchasing processes of all power-and energy projects.

All activities of the already-inked deals under the special law will, however, be continued as per the instruction of the energy adviser.

The council of advisers will make a decision further on execution of the projects under the law, they added.