BPC to save Tk760cr in fuel oil import premiums

Infographic: TBS

The Bangladesh Petroleum Corporation (BPC) will save approximately Tk760 crore in premiums for fuel oil imports during the first six months of 2025.

This saving stems from reductions in supplier transportation costs achieved through relaxed tender conditions and strong negotiations.

While fuel prices for consumers will not decrease, the savings are expected to alleviate some of the financial strain caused by rising expenses, according to BPC officials.

According to the Ministry of Power, Energy and Mineral Resources and BPC, the corporation has targeted the import of 25.65 lakh tonnes of fuel oil from January to June 2025.

Of this, 14 lakh tonnes of refined oil will be purchased through negotiated premiums.

The revised premiums are expected to reduce costs by $2 to $3.98 per unit compared to the rates from the previous six months.

Bangladesh purchases fuel oil based on price assessments published by Platts for Singapore-based oil products. The purchase price is determined by calculating the average of prices from five days — the day of loading, two days prior, and two days after. A premium is then added to this average.

BPC officials explain that the premium is the total service charges incurred by a supplier to deliver fuel oil to its consumers. These charges include shipping costs, insurance expenses, operational costs, and administrative expenses. The premium is determined for a six-month period.

The premium for diesel, the most imported fuel accounting for 65-70% of total imports, has been reduced to $5.11 per barrel from $8.75 per barrel in the previous period of July to December 2024.

Similar reductions have been achieved for other refined fuels. For example, the premium for Jet A-1 aviation fuel has been reduced to $7.32 per barrel from $10.88 per barrel, while the premium for octane has dropped to $5.93 per barrel from $9.88 per barrel.  

Similarly, the premium for HSFO (furnace oil) has been reduced to $44.68 per tonne from $46.70, while the premium for marine fuel has dropped to $72.90 per tonne from $76.88 per tonne.

The agreements to procure refined fuel at these reduced rates were finalised during negotiations held in Singapore earlier last month. A delegation led by Energy and Mineral Resources Secretary Mohammad Saiful Islam, along with BPC Chairman Md Amin Ul Ahsan, General Manager (Operations and Commercial) Moni Lal Das and Deputy Manager Shyamal Paul, participated in the discussions.

Fuel will be purchased from several suppliers, including OQ Trading Limited in Oman, Petco Trading Labuan Company Limited in Malaysia, Emirates National Oil Company Limited in the UAE, PTT International Trading in Thailand and PT Bumi Siak Pusako Zapin in Indonesia, among others.

Savings in premium and procurement

The total cost savings of Tk760 crore are divided between the government-to-government (G2G) process and international tenders. 

Approximately Tk390 crore will be saved through G2G agreements, while the remaining Tk370 crore will come from international tendering processes.

Premium rates for diesel under the international tender process, for example, have dropped to $5.26 and $5.14 per barrel from $8.83 and $8.74 in the previous period, contributing significantly to the overall savings.  

Bangladesh's total annual demand for fuel oil is approximately 70-75 lakh tonnes. Of this, 20-25 lakh tonnes of refined oil are purchased through G2G agreements, while a similar amount is procured through international tenders.

In addition, 13-15 lakh tonnes of crude oil are imported from Saudi Arabia and the United Arab Emirates, which are later refined at Eastern Refinery in Chattogram. The remaining demand is fulfilled through domestic sources.  

The premium costs have fluctuated significantly in recent years. Before 2022, premiums were below $3 per unit, but they rose sharply due to the Ukraine-Russia war and other geopolitical factors, reaching close to $13 in 2023.

There were allegations of preferential treatment for certain suppliers and limited opportunities for negotiation due to outstanding payments owed by BPC.  

Negotiation success and future implications

BPC Chairman Md Amin Ul Ahsan credited the recent cost reductions to a more competitive tendering process and the elimination of outstanding supplier payments.

He explained that changes to tender conditions allowed reputable traders without refineries to participate, increasing competition.  

"This time, the international tender was very competitive. Many conditions have been relaxed, and as there are no outstanding payments, we were able to negotiate strongly," he told The Business Standard.  

Regarding the impact of these savings on consumer prices, he added, "The price for consumers is determined by calculating the international price of fuel oil and the premium expenses. Given the current situation, especially the devaluation of the taka against the dollar, there was no way to avoid increasing fuel oil prices. However, due to cost reductions, there will be no need to increase oil prices for the time being."

Power, Energy and Mineral Resources Adviser Muhammad Fouzul Kabir Khan also highlighted the importance of monitoring regional prices to prevent smuggling.

He explained, "Fuel oil prices are not set in isolation. If prices in Bangladesh are lower than in neighbouring regions, such as Kolkata, there is a risk of smuggling. This factor is always considered in price determination."  

The successful negotiations mark a significant step in reducing import costs and ensuring stability in the domestic fuel market, with no immediate price hikes expected for consumers in the first half of 2025.