To avoid collapse, LPG operators seek 15-year loan rescheduling with interest waivers

Infograph: TBS

Summary:

• LPG industry seeks rescheduling and restructuring of loans totalling at least Tk20,000cr
• It proposes a repayment term of 15 years, including a two-year grace period
• Key demands include an 80% waiver on accrued interest, a reduction in interest rates to 7% or below
• LPG operators also seek exemption from the single borrower exposure limit

Bangladesh's LPG sector is sounding alarms, urging the central bank for a bailout to stave off a potential collapse. The industry has requested the rescheduling and restructuring of loans totalling at least Tk20,000 crore, proposing a repayment term of 15 years, including a two-year grace period.  

Without such measures, operators warn, the stability of the sector that produces, stores and distributes liquefied petroleum gas (LPG) is at grave risk.

The LPG Operators Association of Bangladesh (LOAB) made these appeals following a meeting on Sunday, chaired by its president Mohammed Amirul Haque, managing director of Delta LPG. On the same day, the association formally submitted its proposals to the Bangladesh Bank governor.

Key demands include an 80% waiver on accrued interest, a reduction in interest rates to 7% or below – aligning with the industry's rate of return – and exemption from the single borrower exposure limit. 

LOAB argues that these steps are crucial for the survival of an industry already reeling under financial strains.

"Interest rates have shot up to 14-15% from 8-9% a year ago. We can't run the industry with such high-cost loans," Amirul Haque told The Business Standard.

The LPG industry's troubles extend beyond financial issues. A crowded market of nearly 30 operators competes for a monthly demand of 120,000 tonnes

Md Abdur Razzaq, managing director of JMI Group – which operates in LPG, medical devices and other sectors – spoke of the heavy toll rising interest rates are inflicting on businesses. The monthly interest on his loans has more than doubled, rising to Tk40 crore from Tk18 crore just a year ago.

"Doing business has become very difficult and unsustainable," Razzaq said.

Adding to the challenges, Amirul Haque said, has been the lack of government support for the LPG sector. While the government provides subsidies exceeding $5 billion for liquified natural gas (LNG) and other energy products, the LPG industry receives no such assistance despite being a cleaner energy option. 

Furthermore, although the Bangladesh Bank offers low-cost loans for green industries, LPG operators are excluded from these facilities, he added.

The LOAB president warned that if the industry collapses, banks could face Tk20,000 crore in bad loans. Besides, thousands of jobs would be lost.

The situation has further been worsened by unscrupulous traders selling empty LPG cylinders to steel re-rolling mills, a trend fuelled by inadequate law enforcement. 

"Every company is losing cylinders to scrap dealers, and this problem is worsening," said Humayun Rashid, vice president of LOAB and managing director of Energypac Power Generation.

He also criticised banks for their cautious approach to lending. The depreciation of the taka has further strained businesses, reducing the dollar value of local currency loan limits by nearly 40% since 2022. 

As a result, if a company has a Tk100 crore limit, it now receives less than $8.5 million, down from nearly $12 million in 2022, he added.

Overcrowded market and unsustainable pricing

The LPG industry's troubles extend beyond financial issues. A crowded market of nearly 30 operators competes for a monthly demand of 120,000 tonnes. 

Additionally, many companies invested Tk500-800 crore to comply with a 2017 government mandate for a 5,000-tonne storage capacity, but intense competition has made these investments difficult to recover.  

Some operators have resorted to selling cylinders far below their production cost of Tk3,000 to capture market share. 

Major players like Omera, Bashundhara, and MGI (Fresh) sell cylinders for Tk800-900, absorbing losses of over Tk2,000 per cylinder. For a company introducing 10 lakh cylinders, this translates to a subsidy burden of Tk210-220 crore, while those with 40 lakh cylinders face losses nearing Tk1,000 crore.  

Industry insiders estimate that 60-70% of the country's 4.5 crore cylinders were sold at prices as low as Tk500-700 – less than their scrap value – highlighting the dire financial strain on companies.  

Razzaq, who entered the LPG market in 2020, faced unexpected losses of nearly Tk1,000 crore from cylinder subsidies alone. 

Initially budgeting Tk700-800 crore for his LPG plant, pandemic-related delays and subsidy costs pushed his investment to Tk3,000 crore, with over Tk2,000 crore financed through bank loans.  

"The biggest hit came from massive losses in cylinder sales," Razzaq lamented.  

In such a situation, LOAB has urged the central bank and the government to step in with targeted policies, subsidies and access to low-cost loans. 

Without immediate intervention, the industry risks collapse, leaving significant economic and social impacts in its wake, they said.