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Two-thirds of LPG sellers hold on to bulk importers to stay afloat in dollar crisis
The liquefied petroleum gas (LPG) sector in Bangladesh is in serious crisis. About Two-thirds of the 30 LPG companies in the country are now struggling with an everyday task that has become extraordinarily difficult, that of opening Letters of Credit (LCs) to import this indispensable cooking fuel which has also become the go-to for industries and automobile.
The overwhelming reason is the ongoing dollar crisis, according to the industry insiders. These companies find themselves in a difficult situation. They are being forced to keep their factories churning by tapping into the gas supply from a select few companies.
Companies like Omera, Bashundhara, BM, Uni, Jamuna, United are among the few chosen ones, who are importing LPG in large quantities.
Now it’s all about managing that elusive working capital and sidestepping potentially colossal losses. It’s a dance with the dollar crisis, and these companies are doing their best to juggle the challenges to keep the machines churning out products.
Omera had imported around 15,000 tonnes of LPG a month in the second half of 2022; nowadays, it is importing 25,000 tonnes monthly to meet the increasing demand from the industrial and automobile users. It also supplies the other brands bottlers who are unable to import on their own.
On the other hand, after huge investments for infrastructures and holding a strong market position, most others, including Navana, and G-Gas, started to depend on Omera for local procurement.
At least 18 companies were importing bulk LPG a year ago, and now, not even half of them are able to manage to open LCs for imports on a regular basis, said Azam J Chowdhury, president of LPG Operators Association of Bangladesh (LOAB).
For instance, G-Gas, a concern of engineering conglomerate Energypac, used to import 5,000 tons or more LPG a month. It could not import any for the last three months.
“Due to the crisis of the greenback, dollars are nowhere available at the official rate. Banks are asking for even a 130% LC margin against the multimillion dollar LCs,” said Humayun Rashid, managing director and CEO of Energypac.
“When an industry is incurring continuous losses, the unforeseen high LC margin is not affordable,” added Rashid who is also the president of the International Business Forum of Bangladesh.
To stay afloat in the business of essential commodities and to keep its popular brand afloat, his company, like most others, is locally procuring only a portion of what it used to import, thus losing in the competition.
Unlike others, the LPG business cannot pass all their additional costs on to the consumers as they have to sell at the Bangladesh Energy Regulatory Commission (BERC) fixed retail prices.
The gap between the official exchange rate and the practical rate at which LCs are settled months later is determining how much loss an LPG importer will incur per cylinder, according to chief financial officers of LPG companies.
For instance, the BERC while fixing the LPG retail price of Tk117.02 per Kg for December, considered the weighted average exchange rate of Tk116.39 per dollar, at which companies settled LCs in the previous month while importers are rarely getting the dollar below Tk120.
Atiar Rahman, head of finance at Omera Petroleum said, “Every single taka we pay for a dollar in addition to the BERC-recognised exchange rate, is causing a Tk10-12 in loss per 12 Kg cylinder.”
Companies are incurring a loss of around Tk80 per cylinder as they have to buy dollars at Tk122 or even more.
Just paying more for a dollar alone won’t solve the LC opening problem. The high LC margin is also increasing the financial cost of the already struggling companies that had been financially bleeding for more than a year, said the Chief Financial Officer of another LPG firm that was forced to stop importing a few months ago.
“We only know the selling price of our product at the local market but we don’t know how much our purchase cost would be until six months later,” said Mohammad Yasin Arafat, director of Jamuna Gas.
The cause of this paradox is that the LCs are settled 6-8 months later. Yasin said the continuous devaluation of Taka against the dollar has created a situation where delay in settling LCs are making the imports more expensive, on a retrospective basis, he added.
Azam J Chowdhury said, “We raised our concern in this regard during the last meeting with the energy regulator.”
BERC considers only the documented costs of companies while the unofficial and undocumented cost of managing dollars for LCs far exceeds the official rate, said LPG industry CFOs.
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