BPC will sell cheap bulk LPG to private companies due to low bottling capacity

Highlights:

• BPC wants to sell about 5,000 tonnes annually 
• Proposed rate of bulk LPG is half the market rates
• Govt produces LPG from crude petroleum, private companies import it 
• Bangladesh annually consumes 1 million tonnes of LPG
• BPC holds about 2% market share, private companies supply the lion's share 

Bangladesh Petroleum Corporation (BPC) is now moving to sell bulk liquefied petroleum gas, widely known as LPG, at half the market rates to private companies, due to its low bottling capacity.  

Usually, the state-owned agency extracts the gas from imported crude petroleum and markets that in bottled form through its distributors, with BPC subsidiaries Eastern Refinery refining, and LP Gas Limited bottling the gas.

BPC Chairman ABM Azad early last month sent a letter to the Energy and Mineral Resource Division seeking approval to sell about 5,000 tons of bulk LPG annually to private companies.

The latest initiative came as production of Eastern Refinery has recently increased 40%, an output exceeding LP Gas' bottling capacity. 

BPC has proposed selling the LPG in bulk at Tk55,222 per ton, including value-added tax, meaning Tk690 per 12.5-kg LPG cylinder. However, private companies are currently selling such LPG cylinders at up to Tk1,499 per cylinder in the market, at a wide gap in prices.

"Our capacity is not high enough to bottle all the LPG we are currently receiving from Eastern Refinery. We are unable to do that even after working till 8.30pm every day," Abu Hanif, managing director of LP Gas Limited, told The Business Standard (TBS).

"We have no alternative but to sell LPG to private companies in bulk form," he said, adding that the regular operation of BPC subsidiaries will otherwise be hampered.

When asked about the price gap, he said he was unaware of it. "The bulk LPG will be sold on open tenders."

Earlier in 2020, the BPC sold a large consignment of bulk LPG to private companies at the same price. It did not propose an increase in price to continue the bulk LPG sales, despite the global price rise from $380 per ton in 2020, to $953 this year. 

However, industry insiders and consumers criticised the BPC move, saying it will benefit middlemen and deprive consumers.  

"It is very regrettable that low cost government-produced gas will be sold at higher prices by private companies, with the bulk LPG sale," said MdShamim Chowdhury, joint-secretary of the Chattogram LP Gas Distributors Association.

"The government will lose revenue and consumers will be the ultimate losers with the initiative, while middlemen will benefit," he told TBS.

BPC should increase its bottling capacity and expand the market so that both the government and consumers can benefit.  

"The government is favouring business people day by day, leaving consumers struggling," said SM Nazer Hossain, vice-president of the Consumers Association of Bangladesh.

"There is ill-intentioned corruption in the BPC move to provide gas to private companies at Tk690 only [per 12.5 kg] that is currently selling for Tk1,500  in the market," he told TBS, adding that it would increase the scope for under-the-table deals.

"The companies will sell the gas at higher prices as usual."

According to the Bangladesh Energy Regulatory Commission, private companies sold a 12.5 kg cylinder of LP gas at the highest price of Tk1,499, in April, while the government sold it for only Tk591.

The government produces the gas from crude petroleum which is why its production cost remains low, while private companies directly import propane and butane, the two ingredients of LPG, at comparatively high prices.

Saudi Aramco determines the price of the two LPG ingredients and updates that pricing from time to time.  Last April, the price of the mixture of propane and butane was $953 per ton.

With freight and other costs, private companies are able import the gas at $1,053 a ton, meaning Tk1,135 per 12.5 kg cylinder, while their retail price is up to Tk1,500.

Bangladesh annually consumes some 1 million tons of LPG, mostly for household cooking, while the BPC holds about 2% of market share, and several private sector companies including Bashundhara, Jamuna, BM Energy, LAUGFS, Totalgaz, and Omera Petroleum supply the lion's share.