IndianOil-Beximco LPG venture in limbo amid India-Bangladesh bonhomie

Bangladesh Prime Minister Sheikh Hasina Wajed concluded her four-day India visit on September 8, with the two South Asian neighbours signing seven MoUs in areas including water resources, space technology, railways and defence equipment manufacturing.

As the controversial and powerful Bangladesh MP Salman Rahman was part of Sheikh Hasina’s delegation to India, a question arises on why the over  two -year-old joint venture between PSU IndianOil and Rahman’s Bangladesh Export Import Company (Beximco) has not yet taken off. Rahman was appointed the private investment and industry advisor to Hasina in January 2019.

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Seventeen months after that, on July 1, 2020, IndianOil and Beximco announced a JV to set up an LPG import, bottling and distribution facility at Mongla, Bangladesh’s second busiest port after increasingly congested Chittagong.

Questions over JV

Bangladeshi newspaper The Daily Star, quoting local research firm Apprentice Consulting, said Beximco is near the bottom of the domestic LPG market with just a 2 per cent share, while market leader Bashundhara LP Gas has a 24 per cent share. This raises the question why IndianOil (the market leader in India with more than 50 per cent share in transportation fuels) chose Beximco as its JV partner.

Whatever may have been IndianOil’s compulsions, its LPG JV project with Beximco continues to languish, though the consultancy firm PriceWaterhouseCoopers had prepared the project commercial feasibility report in February 2020.

Bangladesh currently imports LPG at $110/tonne but if the gas is imported in very large gas carriers (VLGCs), as envisaged by the IndianOil-Beximco JV, costs could come down to just $45/tonne, an industry expert said.

Clearly, this project has obvious commercial advantages for Bangladesh but it is yet to take off. Oil industry experts say technical and commercial challenges are proving to be major hurdles.

Broadly, the IndianOil-Beximco LPG JV was to set up a 5m t/y LPG import terminal to berth VLGCs; lay a pipeline to transport the LPG to Agartala in Tripura and other areas of India’s land-locked North-East; set up truck loading bays to transport LPG by road across Bangladesh; put up a barge loading facility to transport LPG by barge to river terminals throughout Bangladesh; and, set up an LPG bottling facility.

Technical challenges

But, said a source involved with the project report, “Bangladesh’s soft soil makes the cost of any civil construction there two-and-a-half times more than in India. Even without the jetty (to berth VLGCs), the seabed dredging and the pipeline to Agartala, the project cost was working out to Rs 3,000 crore.”

He added that in Bangladesh, criss-crossed as it is by rivers and streams, civil construction workers must hammer piles at least 50 metres into the soft soil for stability. Further, “to ensure stability, six-metre-high earth must be filled at the (LPG import terminal) project site, increasing the soil load (and costs).”

Moreover, strong sea currents off Bangladesh mean the operating costs of the proposed LPG terminal will be high as the shipping channel and seabed will need continuous dredging. “After dredging is done, most of the seabed sand returns to the channel within just five or six hours due to the strong sea currents,” said the source. “Construction of the project itself will take at least four years.”

These technical challenges significantly push up the project capex as well as operating costs. But equally daunting is the commercial challenge IndianOil faces as the JV is supposed to take over Beximco’s existing LPG assets in Bangladesh.

IndianOil’s concerns

Well-placed sources say IndianOil disagrees with Beximco’s valuation of its existing LPG assets in Bangladesh, believing them to be much overvalued. IndianOil’s concerns  are presumably based on Beximco’s paltry (just 2 per cent) LPG market share in Bangladesh.

Given these hurdles, sources say, it is hardly surprising that the project hasn’t moved ahead, as IndianOil is justified in being unenthusiastic.

Contacted for a comment, IndianOil Executive Director for downstream projects Sandeep Jain said he was unaware if the project was on the agenda during Hasina’s visit. “We don’t have any information,” Jain said. About the project not having taken off even after two years, he said: “It is under process. There are timelines (for the project). But they are confidential. I can’t share them.”

As Beximco vice-chairman Salman Rahman occupies a powerful position within Hasina’s inner circle, there’s speculation that Bangladesh most likely lobbied at the highest level in India   for IOC to give up its reservations about the project.

Beximco and controversy

Beximco was set up in 1972 by Salman Rahman and his elder brother Ahmed Sohail Rahman after the government nationalised the family jute mill in 1971. Today, Beximco operates across a diverse number of sectors including energy, textiles, pharmaceuticals, ceramics, media, and financial services.

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Beximco is no stranger to controversy. In September 2019, Bangladesh media reports quoted “deep concern and disappointment” from Transparency International Bangladesh (TIB) executive director Iftekharuzzaman over moves by the country’s central bank to reschedule loan repayments from Beximco and 10 other borrowers for 12 years.

Beximco’s 430.05 crore taka ($51 million) loans and that of the other 10 borrowers were last restructured in 2015 for six years. Iftekharuzzaman said the central bank’s move represented “another compromise and non-compliance” with its own policy against further rescheduling of outstanding loans to favour a “leading perennial loan defaulter.”

(Madhu Nainan is based in Mumbai and is editor of the newsletter ‘Petrowatch’. He has worked with several newspapers and news agency AFP.)