IndianOil-Beximco LPG company in limbo amid India-Bangladesh bonhomie

0

Apart from the technical challenges posed by the topography of Bangladesh which could increase costs, there seems to be a lack of trust between the two partners which is delaying the project.

Bangladesh currently imports LPG at $110/tonne, but if the gas is imported by very large gas carriers, as the IndianOil-Beximco joint venture is considering, costs could drop to just $45/tonne. Photo: iStock

Bangladeshi Prime Minister Sheikh Hasina Wajed concluded his four-day visit to India on September 8, with the two South Asian neighbors signing seven memorandums of understanding in areas including water resources, space technology, railways and the manufacture of defense equipment.

While the controversial and powerful Bangladeshi MP Salman Rahman was part of Sheikh Hasina’s delegation to India, the question arises as to why the more than two-year joint venture between PSU IndianOil and Rahman’s Bangladesh Export Import Company (Beximco) did not hasn’t taken off yet. Rahman was appointed private and industry investment advisor to Hasina in January 2019.

Also read: FM defends exceptional tax on exports of crude oil and petroleum products

Seventeen months later, on July 1, 2020, IndianOil and Beximco announced a joint venture to set up an LPG import, bottling and distribution facility in Mongla, Bangladesh’s second busiest port after Chittagong. , increasingly crowded.

Advertising

Questions about JV

bangladeshi newspaper The star of the day, citing local research firm Apprentice Consulting, said Beximco sits near the bottom of the national LPG market with just a 2% share, while market leader Bashundhara LP Gas has a 24% share. This raises the question why IndianOil (the market leader in India with over 50% share in transportation fuels) chose Beximco as its JV partner.

Whatever IndianOil’s constraints may have been, its LPG JV project with Beximco continues to languish, although consultancy firm PriceWaterhouseCoopers prepared the commercial feasibility report for the project in February 2020.

Bangladesh currently imports LPG at $110/tonne, but if the gas is imported into Very Large Gas Carriers (VLGCs), as the IndianOil-Beximco joint venture envisions, costs could drop to just $45/tonne, said an industry expert.

Clearly, this project has clear business benefits for Bangladesh, but it has yet to take off. Oil industry experts say technical and business challenges are proving to be major hurdles.

Basically, the IndianOil-Beximco LPG JV was to set up an LPG import terminal of 5 mt/year to moor the VLGCs; laying a pipeline to transport LPG to Agartala in Tripura and other parts of landlocked northeast India; set up truck loading docks to transport LPG by road through Bangladesh; set up a barge loading facility to transport LPG by barge to river terminals throughout Bangladesh; and, set up an LPG bottling facility.

Technical challenges

But, said a source involved in the project report, “Bangladesh’s soft soil makes the cost of any civil construction there two and a half times higher than in India. Even without the jetty (to moor the VLGCs), seabed dredging and the pipeline to Agartala, the cost of the project was Rs 3,000 crore.

He added that in Bangladesh, criss-crossed by rivers and streams, civil construction workers have to hammer piles at least 50 meters into the soft ground for added stability. In addition, “to ensure stability, a six-meter-high earth must be filled at the project site (LPG import terminal), increasing the soil load (and costs)”.

Additionally, the strong sea currents off Bangladesh mean that the operating costs of the proposed LPG terminal will be high as the shipping channel and seabed will require continuous dredging. “Once the dredging is complete, most of the sand on the seabed returns to the channel in just five or six hours due to strong sea currents,” the source said. “The construction of the project itself will take at least four years.”

These technical challenges significantly increase project investments as well as operating costs. But equally daunting is the business challenge IndianOil faces as the JV is set to take over Beximco’s existing LPG assets in Bangladesh.

IndianOil’s concerns

Well-placed sources say IndianOil disagrees with Beximco’s valuation of its existing LPG assets in Bangladesh, saying they are grossly overvalued. IndianOil’s concerns are probably based on Beximco’s derisory market share (only 2%) in Bangladesh.

Given these hurdles, sources say, it’s hardly surprising that the project hasn’t moved forward, as IndianOil is right not to be enthusiastic.

Reached for comment, IndianOil’s executive director for downstream projects, Sandeep Jain, said he was unsure if the project was on the agenda during Hasina’s visit. “We don’t have any information,” Jain said. About the project which hasn’t taken off even after two years, he said, “It’s ongoing. There are deadlines (for the project). But they are confidential. I cannot share them.

With Beximco VP Salman Rahman in a powerful position within Hasina’s inner circle, there is speculation that Bangladesh most likely lobbied at the highest level in India for IOC to back down from his reservations about the project.

Beximco and the controversy

Beximco was established in 1972 by Salman Rahman and his older brother Ahmed Sohail Rahman after the government nationalized the family jute mill in 1971. Today, Beximco operates in a number of sectors including energy, textiles , pharmacy, ceramics, media and finance. services.

Also Read: India to supply gasoline blended with 20% ethanol from April 2023; PM inaugurates a factory in Panipat

Beximco is no stranger to controversy. In September 2019, Bangladeshi media reported “deep concern and disappointment” from the executive director of Transparency International Bangladesh (TIB), Iftekharuzzaman, over the steps taken by the country’s central bank to reschedule loan repayments from Beximco and 10 other borrowers for 12 years.

Beximco’s 430.05 crore taka ($51 million) loans and those of 10 other borrowers were last restructured in 2015 for a term of six years. Iftekharuzzaman said the central bank’s move represented “another compromise and disregard” of its own policy against further rescheduling of outstanding loans to foster a “perennial major default”.

(Madhu Nainan is based in Mumbai and is the editor of the “Petrowatch” newsletter. He has worked with several newspapers and the AFP news agency.)

Share.

About Author

Comments are closed.