The government is set to sign revised Gas Sales Agreements (GSAs) with two multinational companies—LafargeHolcim Bangladesh PLC on Tuesday and Karnaphuli Fertilizer Company Limited (Kafco) shortly afterward—as the Energy and Mineral Resources Division (EMRD) finalised the revised tariffs, EMRD Secretary Mohammad Saiful Islam confirmed.
LafargeHolcim Tariff Adjustment Linked to Investment Proposal
The government signed a 25-year agreement with LafargeHolcim in 2000, under which the gas tariff was not to exceed $2.11 per million cubic feet (mmcfd). Despite multiple hikes in domestic gas prices to reduce subsidies, the company has continued paying only Tk 11 (9 US cents) per cubic meter.
Under the new deal, LafargeHolcim has agreed to a revised GSA with the distribution company, accepting the current industrial gas rate of Tk 40 per cubic meter and Tk 42 for captive use, for a period of 10 years.
During the recent Bangladesh Investment Summit, LafargeHolcim proposed a $1 billion investment, contingent on a fixed gas tariff being guaranteed.
Previously, the company filed an arbitration case internationally against the Bangladesh Energy Regulatory Commission (BERC), arguing that the additional tariffs imposed violated the original agreement.
LafargeHolcim has sought to bypass the BERC-determined tariff pending final resolution and reportedly owes Tk 754 crore in unpaid gas bills, despite continuing gas consumption.
Kafco Agreement Finalised Based on Market-Linked Tariff
The new agreement with Kafco will introduce a floor pricing mechanism tied to the international urea fertilizer market.
For example, if the global urea price is US$250 per metric tonne, the gas tariff will be set at Tk 30 per cubic meter. If the international price falls, the tariff could drop as low as Tk 0.10 per cubic meter. Currently, Kafco pays only Tk 18-Tk19 per cubic meter under a five-year deal.
The revised agreement with Kafco will be for another five-year term.
An EMRD official stated that the GSA with Kafco is at the final stage, with the Power and Energy Adviser already endorsing the proposal after negotiations between Petrobangla and Kafco. The company reportedly owes Tk 830 crore in unpaid gas bills.
Disputes Over Tariff Ceilings
In 2003, the government signed agreements with several multinational companies, including Kafco and LafargeHolcim, setting a ceiling for gas tariffs at $2.11 per mmcfd. These caps allowed the companies to benefit from below-market rates for years, although the original agreements are now expiring.
“We have already decided to sign revised GSAs with Kafco and LafargeHolcim as the Power and Energy Adviser has endorsed the proposals,” said Monir Hossain Chowdhury, Joint Secretary at the EMRD, speaking to Just Energy News.
He added that ambassadors from three countries are expected to attend the LafargeHolcim agreement signing ceremony at Bidyut Bhaban on Tuesday.