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The country can also avail around $400 million in indirect financial savings as a result of facilitating the shift from procurement of LNG cargoes under the spot market mechanism to a long-term arrangement.

Furthermore, it can secure up to $1.2 billion in fiscal savings through the displacement of expensive liquid fuels in the power sector, with associated emissions reductions and broader benefits to the economy.

It said the proposed operation involves a revolving working capital facility backed by an IDA payment guarantee to mobilise commercial financing and address payment security and immediate liquidity needs in the sector.

This is coupled with technical assistance to support the analytical work for short- and long-term gas sector planning, reforms, and institutional capacity building.

These reforms would aim to diversify gas suppliers, reduce losses, and improve Petrobangla’s financial and operational efficiency.

As a secure working capital financing for Petrobangla in US dollars, the facility is intended to enhance Petrobangla’s ability to procure LNG by complementing the existing stand-by letters of credit and working capital lines provided by the International Islamic Trade Finance Corporation (ITFC).

The development partner also said the interim government is focused on sustaining the emerging signs of economic recovery, amid mounting energy import bills and associated pressure on the country’s foreign exchange reserves.

The energy sector’s reliance on imported primary fuels places stress on the economy, particularly as Bangladesh struggles with the availability of foreign exchange necessary to finance essential imports.

Imported LNG has supported about 30 percent of total gas needs since 2018 to backfill declining domestic gas reserves.

The absence of gas supply security in the power sector has significant fiscal costs for Bangladesh due to the high costs of generation from alternative sources.

Bangladesh Power Development Board (BPDB), as the single buyer for the power sector, is reliant on Petrobangla for gas supplies for its fleet of gas-fired power plants, it said.

According to the project document, to meet shortfalls due to the lack of availability of gas and other system constraints, Bangladesh imports electricity mostly from India.

However, this is insufficient to meet growing demand. This shortage of gas has forced the BPDB to rely on expensive oil-based power generation that is three to eight times the cost of gas-based power generation.

The reliance on expensive oil-based power generation inhibits cost recovery for the BPDB, given the cap on downstream consumer power prices, resulting in a reliance on government subsidies to close the revenue gap at the level of the BPDB.

Delays in receiving subsidies from the government constrain the BPDB’s financial position, which in turn is unable to make timely payments to Petrobangla.

This creates a challenging cycle, as difficulties in payment collection from the power sector exacerbate Petrobangla’s liquidity issues, leaving it saddled with high arrears—total receivables of Petrobangla as of June 2024 stood at $2.6 billion.