World Bank offers cheaper $350m loan guarantee for LNG imports

Summary:

• Loan terms are cheaper than ITFC's, saving 1 percentage point
• Proposal allows longer repayment (9 months) and renewable credit
• Guarantee may expand beyond $350M, possibly covering fuel oil too
• Current LNG reliance creates financial strain and supplier confidence issues
• MIGA previously backed major Bangladeshi energy and power projects
• Proposal could reduce electricity costs, saving up to $2.5B annually

The World Bank has proposed a $350 million loan guarantee facility for Bangladesh, presenting more favourable terms than the current foreign financing option and creating a new avenue to support the country's long-term liquefied natural gas (LNG) import requirements in 2025.

The "revolving letter of credit facility" offered by the WB's Multilateral Investment Guarantee Agency (Miga) will provide a 100% guarantee for LCs issued by local and international banks to Petrobangla, ensuring secure and efficient access to LNG supplies.

A WB document shared with the government, a copy of which has been obtained by The Business Standard, shows the loan guarantee will be one percentage point cheaper than the rates offered by the International Islamic Trade Finance Corporation (ITFC) for LNG imports.

The proposal also includes the possibility of expanding the facility beyond $350 million, though with reduced World Bank coverage.

Regarding the offer, Power, Energy and Mineral Resources Adviser Muhammad Fouzul Kabir Khan told The Business Standard that they were considering the proposal positively, as it offers lower interest rates and a longer repayment period, making it easier to settle suppliers' dues.

The adviser further said the Economic Relations Division (ERD) is handling matters and will decide the guarantee amount and when the proposal can be formalised.

A senior ERD official, speaking on condition of anonymity, explained that a revolving letter of credit facility is a type of bank guarantee that allows a buyer to make multiple payments for goods or services without needing a new guarantee each time. 

Once the funds are used up, it automatically renews, so the buyer can continue making payments, added the official. 

He said Miga's proposal is a "positive development" given the current energy situation in Bangladesh as it will open a new avenue for LNG import financing. 

"However, ERD will propose to reduce its upfront and guarantee fees," the official said, adding that if the offer is taken, Bangladesh will get a new financing window for LNG imports.

What's in the proposal

Under this guarantee, Petrobangla, Bangladesh's sole LNG importer, will be able to open letters of credit (LCs) with several foreign banks, including HSBC and Standard Chartered. 

They said the final selection of banks for opening LCs will be determined through a joint agreement between the government and the WB.  

Petrobangla will have the option to secure loans from these banks against the LCs. The LC will have a three-month term, while the repayment period for the loans will be nine months.  

Following Miga's proposal, the energy ministry has engaged in discussions with the ERD about potentially doubling the guarantee amount. The ministry is also exploring the option of opening LCs through domestic banks.

The proposal is initially for LNG imports, the guarantee may extend to fuel oil imports in the future, the sources said. 

ITFC loans for LNG

Currently, Bangladesh relies on Islamic Development Bank's ITFC for loans to import LNG, fuel oil, and chemical fertilisers. Since 1977, Bangladesh has been obtaining loans from ITFC for fuel oil imports, and it secured similar loans for LNG imports in 2023. In December 2024, Bangladesh signed an agreement with ITFC for fertiliser imports.

For FY26, the government will borrow $2.45 billion from ITFC to import fuel oil, LNG, and fertilisers. The loan will carry an interest rate of six-month SOFR plus 1.80%, along with a 0.2% administrative fee.  

Bangladesh's daily demand for natural gas stands at 380 crore cubic feet, while Petrobangla is able to supply 250 to 280 crore cubic feet. Of this, 100 crore cubic feet are imported. 

In FY24, Petrobangla imported a total of 83 LNG cargoes from the international market. Of these, 26 were sourced from the spot market, while 57 cargoes were imported under long-term contracts with Qatar and Oman. LNG imports under long-term contracts have been in place since 2018, and spot market imports began in 2020.

Cost benefits 

The World Bank's concept note said Bangladesh would benefit financially from Miga's guarantee for LNG imports compared to current loans from the ITFC. 

The interest rate on the Miga's guarantee facility would range from SOFR + 0.84% to SOFR + 1.01%. The loan would have a repayment period of nine months, with a 0.90% upfront fee and a 0.30% guarantee fee.

In contrast, ITFC loans carry an interest rate of SOFR + 2% including other fees and charges, with a repayment term of six months.

As a result, the World Bank's guarantee offers a 1 percentage point lower interest rate and a 3-month longer repayment period for the government, said the lender.

The concept note also highlights the facility will provide "stable and longer-term working capital arrangement extending up to seven years".

It also said the Bangladesh Power Development Board (BPDB) currently receives only 100 crore cubic feet of gas per day, while its requirement is 140 crore cubic feet. 

As a result, the BPDB relies on oil-based power plants, which incur 3 to 6 times higher costs than gas-based plants. 

If BPDB had the required gas, or if all gas-powered plants were operational, Bangladesh could save up to $2.5 billion annually, even with higher gas prices, while reducing the average electricity generation cost by 10%, said the WB.

Energy expert Professor Badrul Imam told TBS that since Bangladesh has to import energy, the government should seize the opportunity if financing options with lower costs are available. 

He believes the World Bank's proposal could be considered positively by the government.

Miga's pervious guarantees 

Miga has already provided guarantees for several key projects in Bangladesh, particularly for the import of power plant equipment and related activities. 

Notable projects include the 220MW power plant in Bhola, which has a guarantee of $407 million, and the Ghorashal Polash Urea Fertiliser Plant with a guarantee of $357 million. 

Other significant projects supported by Miga include the 220MW power plant in Sirajganj ($69 million), the Northwest Power Generation Company ($132 million), Ghorashal Repowering Project (Phase III) ($97 million), and 225MW Sirajganj power plant ($69 million). 

Besides, Miga has provided guarantees for Ashuganj Power Station ($251 million) and Sheba Telecom ($78 million).

LNG pressure on foreign reserves 

Due to a shortage of foreign currency reserves, the government and related companies often struggle to make timely payments for fuel oil and LNG imports from international markets. 

As a result, suppliers are losing confidence in Bangladesh, and the country is incurring higher costs for imports. There are also instances where Bangladesh faces penalties. 

According to Bangladesh Petroleum Corporation (BPC), the company has outstanding debts of $60 million to foreign fuel suppliers. Similarly, Petrobangla owes around $470 million to foreign suppliers as of December 2024.

To settle these dues, the energy ministry requested the finance ministry in a letter last year to allocate at least Tk5,000 crore to cover LNG import subsidies. 

The letter also warned that if payments are not made on time, LNG suppliers under long-term contracts may halt supplies. Also, delays in payments could reduce participation in LNG tenders from the spot market, and late payments may result in penalty interest charges.