Bangladesh's maiden liquefied natural gas (LNG) import is one step closer to fruition after the cabinet gave the green light to the pricing and draft contract for the deal.
The government will sign a 15-year contract with Qatar's RasGas as it makes an earnest push towards addressing Bangladesh's gas scarcity.
For the first five years of the contract, RasGas will supply 1.8 million tonnes of LNG each year, which will go up to 2.5 million tonnes in the following ten years, according to the draft contract approved by the cabinet committee on purchase on Wednesday.
The LNG would be supplied at: 12.65 percent of the three-month average price of Brent oil plus $0.50 constant per MMBTu (per 1 million British thermal units).
However, during the first five years if Petrobangla has more demand it can increase the volume to 2.5 million tonnes per year. And in the next 10 years Petrobangla has the option to reduce the amount by 10 percent every year.
If in any year Bangladesh takes less than the base amount of LNG, it will have to pay the price on a take-or-pay basis. Later, RasGas will supply the LNG.
Take-or-pay is a provision written into a contract that binds one party to either taking delivery of goods or paying a specified amount.
As financial security, Petrobangla will have to deposit standby letter of credit (SBLC) equivalent of the price of two months LNG on the basis of base annual contract quantity (BACQ) to a first-class international bank.
Payment has to be made in the US dollar within 15 days of submitting import invoice. If there is a delay of seven days, the rate of interest would be LIBOR plus 4 percent. For further delays it would be LIBOR plus 5 percent.
The LNG from Qatar will be added to the national grid line through floating terminals.
The government has signed agreements with the US-based Excelerate Energy and local Summit Group for setting up floating terminals, which would have daily generation capacities of 500 million cubic feet per day (MMCFD).
Summit Group's terminal will be ready this year and Excelerate's by the beginning of 2018, a Petrobangla official said.
The cabinet committee on economic affairs last month gave the nod to awarding the job of setting up another floating terminal to a consortium of local Hong Kong Shanghai Manjala Power Limited and Malaysia's Global LNG and Petronas.
Besides, Petrobangla is negotiating with India's Reliance Power Ltd for setting up yet another floating LNG terminal.
For the use of terminals, RasGas will pay $320,000 for each ship as port charge.
Apart from Qatar, the government has been holding talks with various countries, including Oman and Indonesia, for importing LNG.
Bangladesh is looking outside to alleviate its energy shortage, largely caused by the depletion of domestic reserves and rising demand.
At present, gas supply stands at about 2,750 MMCFD against the demand for 3,600 MMCFD. The shortage of gas has affected power generation as well as industries and households.
The demand for gas will stand at 8,000 MMCFD in 2041, according to an estimate of the energy division.
The government is also considering setting up a land-based LNG terminal, and the energy ministry has already received proposals from more than a dozen companies for the job.
The finance minister has already indicated that from June next year the gas price may be hiked.