State-owned Bangladesh Petroleum Corporation (BPC) has estimated crude oil imports to cost a Free on Board (FOB) price of $74 per barrel, in a revised proposal sent to the Cabinet Committee on Government Purchase last week.
The BPC chairman said the revised proposal for around $600mn in imports takes into consideration drastic declines in oil prices which have brought oil prices to less than $60 per barrel.
“Our proposal from three months ago which was sent to the cabinet committee in December last year was a mistake. We have sent a revised a proposal to cabinet through the Energy and Mineral Resources Division that takes into account the new price of oil,” BPC Chairman AM Badrudduja told the Dhaka Tribune recently.
The BPC plans to import 1.3 million tonnes of crude oil, up 9.53% from the 1.176 million tonnes imported during the last fiscal year that ended on June 30, he said.
According to the proposal submitted to the cabinet committee, the BPC will buy 700,000 tonnes of Arabian light crude oil from state-owned Saudi Arabian Oil Company, widely known as Saudi Aramco, and will import 600,000 tonnes of Murban crude oil from UAE state-owned Abu Dhabi National Oil Company, known as ADNOC.
He said the oil will be purchased at prevailing global market prices.
An earlier BPC proposal sent to the Cabinet Committee on Government Purchase on February 11, 2015, estimated import costs to be approximately $1.129bn, nearly double the $600mn revised estimate.
At the time, the FOB price of oil was estimated to be $117.88 per barrel for the period January-June 2015 and $127.88 per barrel for the period July-December.
FOB is a trade term that means that the seller pays for the transportation of goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination.
Badrudduja said the BPC had revised its proposal to an FOB price of $74 per barrel for the January-December 2015 period.
The corporation’s import bill has dropped 40.95% from $968.55 million expended last fiscal year for 1.176 million tonnes of crude, to the current year’s estimate of $600 million for 1.3 million tonnes, the high official said.
Of the 5.5 million tonnes of petroleum Bangladesh annually requires, crude oil accounts for 1.3 million tonnes of domestic demand while the rest is for refined oil.
BPC has incurred losses in the last few years because of soaring prices in the international market, purchases made on credit and a policy of reselling in the domestic market at relatively low prices.
The BPC chairman said his organisation had not taken any money in subsidies from the government since October last year, as oil prices kept on plummeting in the international market.
“We will not need to take any more money for the rest of the current financial year,” he added.
The BPC will reach its break-even point if oil prices hold steady, he said.
“Bangladesh has standing agreements with both Saudi Arabia and the United Arab Emirates (UAE) for importing crude oil under the selling price system of the government,” Secretary of the Energy and Mineral Resources Division Abu Bakar Siddique told the Dhaka Tribune recently.
“But every year the contracts need to be renewed by both sides in order for them to be effective for another year,” he said.
The energy secretary said the oil purchase rate could change if oil prices or exchange rates change.
“The cabinet committee suggested that we should revise our earlier proposal. We have done so and sent them a proposal with a new FOB price. Whether the committee will be satisfied with our revisions is a matter for the committee to decide,” Abu Bakar said.
The price per barrel of crude oil will be fixed at $60 or less, depending on when it is purchased, he said.
The BPC typically funds its oil imports with loans from the International Islamic Trade Finance Corporation, the lending arm of the Islamic Development Bank, foreign banks and via deferred payment mechanisms.
The state-run fuel import and marketing monopoly also takes loans from the government exchequer through the Ministry of Finance for meeting fuel import bills.
The remaining amount comes from the sale proceeds of petroleum products in the domestic market.
After import, all crude petroleum is refined at the state-owned Eastern Refinery plant in Chittagong.
The refined fuel oil is marketed by three oil marketing companies under the Bangladesh Petroleum Corporation.