How cheaper LPG import from sanctioned Iran rattling the market

While the LPG sector in Bangladesh struggles to survive in an oversaturated market, some of the country's around 30 operators are reportedly importing cheaper LPG from Iran, a nation under sanctions by the US and EU, leading to uneven competition, particularly for companies that want to operate fairly.

According to operators, importing LPG from Iran costs $40 to $50 less per tonne than other markets, giving importers a margin of over Tk40 per 12-kg cylinder. However, consumers aren't reaping the benefits, as these importers offer higher commissions to dealers instead of lowering prices for buyers.

LPG, a mix of propane and butane, is typically imported at a contract price set by major producers like Saudi Aramco, which serves as a global benchmark. In addition to this, a premium is charged, covering various extra costs. While the benchmark price remains the same across markets, premiums can vary.

In August, for example, Premier LP Gas imported butane at a contract price of $690 per tonne, with a $120 premium, whereas two other companies paid a much lower premium of $74 and $84 respectively.

The LPG Operators Association of Bangladesh (LOAB) has raised concerns with various authorities, including the Bangladesh Bank, the Chattogram Port Authority, and the energy and shipping ministries. 

They warned that the trend of importing LPG from Iran, which began after the Russia-Ukraine war in 2022, is growing at an alarming rate. Currently, nearly one-fourth of the country's LPG supply — over 1.5 lakh tonnes per month — is being sourced from Iran.

The Association in a letter sent to the Chattogram Port Authority on 6 October said the Panama-flagged vessel GAZ GMS (IMO 9131539), supplied by Octane Energy Group FZCO, docked at Chattogram Port on 3 October, and is believed to be carrying LPG sourced from Iran.

Photo: TBS

The IMO ship identification number is a unique identifier that remains consistent throughout a vessel's life cycle, regardless of changes in ownership, country of registry (flag state), or ship name.

The Association further warned that another vessel, Captain Nikolas (IMO 9008108), suspected of carrying Iranian LPG, was en route to Chattogram.

The letter signed by Azam J Chowdhury, president of LOAB, said they have credible information the vessel will falsely declare its cargo as being loaded from Iraq.

The letter urged the Port Authority to halt the discharge of LPG from the two vessels, detain the ships and their crews, and conduct a thorough investigation to verify the true origin of the LPG cargo.

However, no action was taken, allowing the Tanzania-flagged Captain Nikolas to arrive in Bangladesh last week. While transferring LPG to the lighterage vessel Sophia yesterday, both ships caught fire.

Confirming that the fire was brought under control at around 3:30am, Chattogram Port Authority Secretary Mohd Omar Faruk said it took a long time to douse the blaze on Sophia due to the presence of gas in the vessel.

Regarding misreporting country of origin, he said, "A CPA team inspected Captain Nikolas and another vessel but did not find the allegation true. According to the documents, one ship loaded LPG from Dubai while the other from Oman."

Omar also said the matter would have to be solved by the Custom House, Chattogram.

Earlier warnings 

Concerns about illicit LPG imports were flagged back in January, when Mahammed Jamal Hosen, representing the Bangladesh LPG Distributors and Dealers Welfare Association, sent a letter to the Bangladesh Bank governor, warning that some local companies were importing LPG from Iran.

He expressed fears that legitimate businesses were facing unfair competition due to these imports, with the potential for widespread economic fallout.

"The entire investment in this sector is on the brink of collapse. Many banks will face direct repercussions, and in the long term, Bangladesh's reputation as a destination for foreign direct investment will be at stake," he said.

Hosen urged the central bank and regulatory bodies, including the Ministry of Energy, Bangladesh Energy Regulatory Commission, and the National Board of Revenue, to take immediate action. He called for the identification of suppliers, importers, and the banks involved in facilitating these transactions. 

However, no action was taken, attributing the inaction to the influence of powerful business groups, he added.

When contacted about the letter, a senior official of the Bangladesh Bank said if all companies can import LPG from Iran, it will be better for the country and the consumers.

"We've recently been aware of the issue and we're looking into it," said the official, requesting not to be named.

How some buying LPG from Iran

Bangladeshi companies are purchasing LPG from Iran through schemes designed to evade detection. A common method involves using intermediaries and third-party countries to disguise the gas' origin.

Importers work with intermediaries based in Dubai, UAE, to get cheaper gas. The Business Standard has obtained a copy of 10 such companies, most of those operating from the same office in Dubai, where documents are altered to conceal the Iranian origin of the LPG.

These documents falsely claim the LPG is being imported from Basrah Gas Company (BGC) and loaded at the Port of Khor Al Zubair, Iraq (port code IQ KAZ). 

In reality, the gas is shipped from Iran's Port of Lavan (port code IR LVP).

For instance, in August, two local LPG companies imported over 10,000 tonnes of LPG on a vessel named G YMM (IMO 9139696). The documents submitted to customs and port authorities showed the gas came from Basrah Gas in Iraq. 

However, TBS on 6 September obtained a response from Andrew Wiper, managing director of Basrah Gas, confirming that the vessel G YMM has never loaded gas from his company.

"BGC is currently the only authorised company to export LPG with SOMO (Government of Iraq subsidy). BGC currently only exports highly-pressurised LPG and semi-refrigerated products on handy vessels. BGC does not export refrigerated LPG," said the managing director of BGC.

He added that his company doesn't have any plan to export fully refrigerated LPG in 2024/2025. Whereas Bangladesh imports fully refrigerated LPG.

In contrast, Deputy Commissioner Saidul Islam, spokesperson of Chattogram Custom House, on 11 September told TBS, "Although the LPG supplier is an Iraqi company, it can come from any country in the world. We have no information that LPG brought in by MV G YMM is not imported by Iraq's Basra Gas Company."

"If any written complaint is submitted to the customs authorities in this regard, then we will look into it," he added.

How Dubai companies helping importers

"Please do not sail to KAZ-IRAQ (port) which is not necessary and only for its cost for us. We told you to just simulate the KAZ as the loading port in the vessel system which all are doing the same. You are kindly requested to follow charterer instruction. Warm regards, A Ahmadi, head of commercial operation & operation, Alliance Energy Co."

This was the instruction from the Alliance Energy, one of the 10 Dubai-based companies where documents and cargo manifests are altered to hide their Iranian origin.

Another instruction shows the captain of a vessel being instructed to keep the AIS switched off after leaving the Khor Fakkan port in Sharjah for Iran. 

AIS is the Automatic Identification System, a tracking system used on ships to provide identification and positioning information to both vessels and shore stations.

"Please ensure that the AIS is switched off," reads the instruction order obtained by TBS.

Another method used by Dubai-based suppliers is the use of "ghost ships" — vessels that disable their transponders to avoid being tracked while transferring LPG at sea. These ship-to-ship transfers make it difficult to trace the gas' original source.

Are consumers getting the benefits?

The Bangladesh Energy Regulatory Commission (BERC) reviews and adjusts the price of LPG every month based on a standard pricing framework that includes the Saudi Aramco contract price, currency exchange rates, freight costs, local distribution expenses, and profit margins for distributors. 

As a result, the prices remain uniform for all companies in the market.

"BERC cannot go beyond the commercial invoice when determining LPG prices," said Md Maqbul-E-Elahi Chowdhury, a former BERC member.

The commercial invoice, an export document, serves as legal proof of the transaction between the buyer and seller. For these LPG imports, commercial invoices, The Business Standard has obtained, are seen issued by Dubai-based suppliers. This document is used for customs clearance and in determining duties and taxes.

"It's challenging to track the exact source of LPG imports. Both the National Board of Revenue and BERC must rely on these commercial invoices to verify prices, taxes and origins," Chowdhury added.

Earlier this month, BERC set the retail price of LPG at Tk1,456 per 12-kg cylinder for October, a Tk35 increase from the previous month. While this ensures uniform pricing, companies importing cheaper LPG from Iran enjoy a competitive edge.

One major LPG operator noted that his company's auto gas stations are losing out because competitors offer stations Tk8 per unit in commission, compared to his company's Tk6. Similarly, dealers are being lured with higher commissions — ranging from Tk20 to Tk30 per 12-kg cylinder — by operators engaging in undercutting practices.