33% gas tariff hike undermines Bangladesh's investment appeal

Infographic: TBS

Highlights:

• Gas prices hiked 33%, hurting investment and industrial growth
• High LNG tariffs raise costs, reducing Bangladesh's regional competitiveness
• System inefficiencies, gas theft worsen supply and raise prices
• Tariff hike contradicts government's investment promotion efforts and promises
• Domestic gas output declining; LNG import reliance increasing sharply
• Experts urge domestic exploration, tax cuts, and infrastructure investment

Bangladesh's bid to attract investment suffered a setback as the Bangladesh Energy Regulatory Commission (BERC) raised gas prices by 33% for new industries and captive power plants on 13 April – contradicting the Bangladesh Investment Development Authority's (Bida) efforts to position the country as a manufacturing hub.

The hike erodes Bangladesh's regional competitiveness. Competitors like Vietnam and India impose minimal taxes on LNG imports – 2.75% and 2% respectively – while Bangladesh slaps a steep 37% tariff, inflating costs despite government pledges to ease business expenses.

Critics argue LNG tariffs serve as a revenue tool rather than industrial support. In FY24, Petrobangla paid Tk8,638 crore in LNG import taxes – Tk2,500 crore more than the subsidy provided.

Why gas costs more

Officials cite global prices and subsidies but ignore systemic inefficiencies. Systems losses hit 13.53% in H1 FY25, far above the 2% cap. Titas alone lost 1,200 million cubic metres of gas (worth Tk2,945 crore) in FY24 – nearly half the LNG subsidy. Illegal connections persist despite dismantling 2.5 lakh lines and 420km of pipelines last year.

Global vs local pricing

Had Bangladesh fully depended on imported liquefied natural gas (LNG) at current spot market rates – $13.12 per MMBtu – the cost of gas would have soared to Tk56.6 per cubic metre. With the addition of operational charges and taxes, the price would climb even higher. Fortunately, imported LNG accounts for only about 30% of the country's total gas supply; the remainder is sourced from domestic fields.

On 16 April, Bangladesh supplied 2,717 mmcfd of gas, of which 834 mmcfd came from imported LNG. The balance was met by local gas fields, operated by companies such as Chevron, Tullow, and state-owned enterprises. Even if calculated at global spot rates – $3.97 per MMBtu as of 7 April – domestically produced gas should cost Tk29 per cubic metre, or Tk24.5 if gas from state-run fields is considered exclusively.

Despite this cost advantage, the government abruptly increased gas tariffs by 33% for industries and captive power plants, effective from 13 April – raising the unit price from Tk30 to Tk40. The move caught Bida off guard, particularly as it came just days after the agency concluded a major investment promotion event in Dhaka. Bida criticised the decision as "discriminatory" and called for a prompt review of the new pricing.

Was the hike inevitable?

The recent gas tariff hike stands in sharp contrast to the strategies adopted by Bangladesh's global competitors. In energy-sensitive markets, governments typically employ safeguard mechanisms to buffer against volatility. For instance, India set its domestic gas price at $7.80/MMBtu for March – lower than the previous month – despite importing LNG at $13.40. India also follows a monthly pricing formula introduced in 2023, providing greater predictability.

In contrast, Bangladesh's pricing changes are abrupt and often steep. A notable example was in February 2023, when industrial and power tariffs jumped from Tk14 to Tk30 per cubic metre – a staggering 114% increase.

At that time, the global LNG spot price had peaked at $54/MMBtu (August 2022) before falling to $13 by March 2023. Prices dipped further to $9 in March 2024 but rose again to over $13 early this year. While volatility persists, current rates do not justify another sharp hike – especially when industries are already grappling with inadequate gas supply.

Despite rising industrial demand, domestic gas output has fallen below 2015 levels due to limited exploration efforts, increasing reliance on LNG imports. To meet power sector needs, the interim government has doubled spot LNG imports for May, with state-run Rupantarita Prakritik Gas Company Ltd inviting tenders for six cargoes – each holding 3,200,000 MMBtu, or about 3,000 million cubic feet after regasification.

However, Bangladesh's existing regasification infrastructure can handle only 1,100 million cubic feet per day, capping the volume of LNG that can actually be utilised.

In response to the supply crunch, the Energy Division is planning gas rationing for industries, prioritising export-oriented units in special economic zones. Yet, rather than addressing structural issues, the regulator has opted for a blunt solution: passing the cost burden onto industries, which together account for 37% of total gas consumption – 19% for manufacturing and 18% for captive power.

What should be the just price?

Showkat Aziz Russell, president of the Bangladesh Textile Mills Association (BTMA), called the gas price hike "unacceptable under any circumstances", arguing that the rate could instead be reduced to around Tk20 per cubic metre.

The current pricing model that treats renewed gas sales agreements with existing industries as new connections is seen as a deterrent to investment. Zaved Akhtar, president of the Foreign Investors' Chamber, warned that such a policy risks undermining investor confidence, especially after the recent Bida summit that attracted participants from nearly 50 countries.

Although the BERC holds public hearings before tariff revisions, industry leaders said the February hearing failed to justify the hike, particularly with global prices now relatively stable. Yet, their input once again went unheeded.

Experts have long urged the government to prioritise domestic gas exploration, but drilling remains stalled. Until new wells are developed, which could take years even if initiated today, LNG imports remain the only viable option.

Meanwhile, policymakers must account for local inefficiencies – such as gas leakage – and the added costs of regasification, storage, and distribution. Urgent investment is needed to expand LNG terminal and pipeline capacity.

To keep energy pricing competitive and investment-friendly, industries are also calling for the removal of taxes and duties on gas. But above all, experts agree that ramping up domestic exploration is the most critical – and overdue – step. In the interim, the government must explore more balanced solutions to attract investment and fuel economic growth.