Dhaka has backed off from procuring heavily discounted Russian fuel oil and the state-owned Bangladesh Petroleum Corporation (BPC) has shelved Moscow's oil supply proposals. Officials have cited technical, financial and diplomatic reasons behind abandoning the consideration of the offer.
The government could have reduced fuel import costs and eased pressure on the foreign exchange reserves if it could import Russian oil like India and China, sources at the Energy and Mineral Resources Division said.
The BPC is now finalising its fuel import plan for the next calendar year, excluding the Russian proposals, the officials added.
India is estimated to have saved around $433.67 million by importing Russian crude oil at the deep discounted rates since the Ukraine war began in February, reports the Times of India.
Khalid Ahmed, director (Operations and Planning) of the BPC, said, "We were also keen to import Russian oil but had to ditch the proposals because of the high sulphur content in Russian oil and complications over the mode of payment."
The price of Russian oil has dropped following the US-led Western sanctions on Russia. In this situation, various countries, including India and China, have been snapping up Russian oil at 40% lower prices.
Russia first offered crude oil to Bangladesh in March and two months later it offered to sell refined oil.
On 24 August, Zarubezhneft, a Russian state-controlled oil company based in Moscow that specialises in exploration, development, and operation of oil and gas fields outside Russian territory, sent a sample of its crude oil to Bangladesh for testing its compatibility to Bangladesh refineries.
After elaborate lab tests at the Eastern Refinery Limited, the BPC found that the sulphur content in the Russian oil is over 5,000 parts per million (ppm), which would not meet the criteria of the Bangladesh Standards and Testing Institution (BSTI) even after the refining process.
At present, Bangladesh imports 50ppm mixed refined fuel against the benchmark of 350ppm set by the BSTI.
"If we use this fuel in vehicles, the city will turn dark from black smoke," said a top official of Eastern Refinery, adding, "Therefore, we have shelved the plan for now."
Apart from Zarubezhneft, some other Russian companies including the PJSC Rosneft Oil Company, a Russian state-owned energy company headquartered in Moscow, had proposed to supply refined Russian oil to Bangladesh.
Payment complexity, diplomatic reasons
Upon receiving the Russian oil supply proposals, Prime Minister Sheikh Hasina on 16 August asked the authorities concerned to check the feasibility of a currency swap between Bangladesh and Russia to import Russian oil.
The review committee has, however, found out that managing the required amount of Russian Ruble would be difficult for Bangladesh to import Russian oil as per their proposals because the volume of bilateral trade between the countries is not large enough.
The US dollar was the proposed alternative currency for the payment, but the authorities were not sure how it would impact Bangladesh's international relations if it imports Russian fuel amid the Western sanctions.
Because of these reasons, the government has finally ditched those proposals too, said officials.
BPC moves to import 32 lakh tonnes of refined fuel thru' G2G
The BPC has projected a demand of 64 lakh tonnes of refined fuel for 2023 that will be sourced under the government-to-government (G2G) model and open tendering process.
For the G2G part, the BPC has started negotiating the premium rate with nine suppliers from Singapore, India, China, Malaysia, and Kuwait.
The premium is a freight and supplier's margin in delivering fuel which is added to the product price.
The suppliers are Singapore's Petrochina Pte Ltd, Emirates National Oil Company, PTT International Trading Pte Ltd, UNIPEC Singapore Pte Ltd, PT Bumi Siak Pusako Zapin, Indian Numaligarh Refinery Limited and Indian Oil Corporation Ltd, Malaysian Petco Trading Labuan Company Ltd, and the Kuwait Petroleum Corporation.
Currently, the annual demand for different types of fuels in Bangladesh is around 65 lakh tonnes, of which above 90% are imported in both refined and crude forms.