WB stands guarantor for $350m revolving LC facilities

World Bank's soft-lending-window IDA has now assured Bangladesh of facilitating LNG import with funding underwriting to banks to meet the country's growing energy demand amid dwindling local gas output, officials said.

Riding on the International Development Association (IDA) assurance, government's Energy and Mineral Resources Division (EMRD) is going to call expression of interest (EoI) from national and international commercial banks for financing the import of liquefied natural gas or LNG with the repayment guarantee from the World Bank entity, they said Thursday.

Meanwhile, the WB's guarantee organisation for promoting cross-border investment in developing countries -- Multilateral Investment Guarantee Agency (MIGA) -- had offered Bangladesh the revolving LC facilities for the import of LNG.

The MIGA recently placed a proposal to the interim government to stand guarantor for trade financing, especially for opening letter of credit (LC) with local or foreign commercial banks.

Now the Washington-based lender's soft-lending window has assured of giving guarantee on US$350 million worth of LNG import from overseas market under "revolving LC facilities".

"In the first phase, Petrobangla will seek EoI from 7-8 aspirant commercial banks on their LC- opening rate and other service charges for the LNG import. We will scrutinise the proposal," says a senior EMRD official.

"If we see it a viable option compared to our other existing ones, then we will welcome the IDA's guarantee scheme," he adds.

Meanwhile, an Economic Relations Division (ERD) official said Petrobangla would scrutinise the offers of the commercial banks and guarantee costs. "If it finds the proposals viable, then we will accept the IDA's guarantee proposal."

The EMRD considers the WB entity's proposal a new avenue for Bangladesh in LNG supply through import from overseas market to feed the country's growing fuel demand.

Another senior EMRD official says although the MIGA proposed to help Bangladesh in importing liquefied natural gas worth up to $350 million annually from the international market, but it also offered that the facility would be enhanced over the next seven years.

The proposed $350-million credits for the first year will be a "revolving LC facility" for securing Petrobangla's long-term working capital aimed at importing the LNG smoothly.

According to the proposal on revolving LC-facilitating fund, the IDA will charge SOFR-plus 2.0 per cent. Its opening LC period will be three months and the repayment period nine months.

The EMERD official said after getting the EoI from the commercial banks, they would compare the proposal with other financing facilities like the ongoing credit facility from the Islamic Development Bank (IsDB)'s ITFC.

"If we find it concessional than the other existing facilities, we will go for taking the IDA offer," the EMRD official told the FE.

The ITFC recently confirmed $600 million worth of loans for Bangladesh to import fuels and fertilizers -- both in high demand for feeding growing economic activity.

Bangladesh government will borrow $600 million from the ITFC to import fuel oils, LNG, and fertilisers. The loan will carry an interest rate of six-month SOFR-plus 1.80 per cent, along with a 0.2-percent administrative fee.

Another EMRD official says, "We have already requested the MIGA to relax its terms and conditions as it is a bit costlier than the other loans we are getting from different sources."

As per IDA's proposal, some local and foreign banks will arrange loans for opening LCs for LNG import. The IDA will be underwriter on the loans from the commercial banks on behalf of the importer -- the state-run Petrobangla.

Following Bangladesh's natural gas-supply shortages from its own gas fields across the country -- largely for neglecting new exploration -- it has imported the liquid gas from overseas market over the last few years in a bid to meet local energy demand.

The import of LNG started in the 2018-2019 period. Since then, imported LNG has played a vital role in meeting the country's growing gas demand-albeit with strains on the country's foreign-exchange reserves.

In 2022, the country imported a substantial quantity of LNG, to the tune 5.06 million metric tonnes, from Qatar Gas, Oman Trading, and the spot market at a cost of US$4.555 billion.

Last year, a total of 86 LNG cargoes were imported -- 56 from long-term suppliers and 30 from spot market, the official adds.

Bangladesh will need to import 30-Mtpa LNG to meet the growing local demand by 2041 as domestic gas reserves are depleting fast, according to a global report of the Copenhagen-based research firm Ramboll in association with Geological Survey of Denmark and EQMS Consulting Limited.

The country's "existing gas reserves will run out by 2038 if no new exploration and discovery take place", says the report.

By 2041, Petrobangla predicts, the demand for natural gas will be around 8.0 billion cubic feet per day (Bcfd).

The country's overall gas output now hovers around 2.57 Bcfd, of which 0.50 Bcfd is regasified LNG and the remaining 2.02 Bcfd of gas comes from local gas fields, according to Petrobangla data as of last December.

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