Dhaka, Delhi set to sign deal next week

FT ONLINE

The governments of Bangladesh and India are expected to sign a memorandum of understanding (MoU) early next week in Dhaka to implement a cross-border pipeline.

India would finance Rs 3.03 billion (Tk 3.90 billion) in grant for building the proposed 130-kilometre pipeline to be used for exporting diesel to Bangladesh.

This will follow the signing of further contracts to execute the laying of the pipeline, director for operations and planning with Bangladesh Petroleum Corporation Sayed Mohammad Mozammel Haque told the FE Thursday.

The Indian government will assign an engineering, procurement and construction contractor, while the project director will be assigned from Bangladesh to implement the project.

Bangladesh's Economic Relations Division will facilitate the project execution.

Indian foreign secretary will be arriving on April 8 in Dhaka for the signing.

Of the total length, 125 kilometres will be constructed inside Bangladesh, while 5.0 kilometres would be in India.

Diesel from India's Numaligarh Refinery Ltd (NRL) of Assam having annual capacity of 3.0 million tonnes will be transferred to Parbatipur oil storage tanks inside Bangladesh.

India's state-run Bharat Petroleum Corporation Ltd holds 61.65 per cent stake in Numaligarh, while the government of Assam and Oil India Ltd own 12.35 per cent and 26 per cent shares respectively.

State-run BPC will import diesel from Numaligarh for 15 years at a premium rate of US$ 5.50 a barrel to Mean of Platts Arab Gulf diesel assessment on cost and freight basis meaning the price would be US$ 5.50 a barrel higher than the international price of diesel.

This premium rate is, however, more than double the existing premium rate as the BPC has been importing diesel from the international market at a premium rate of around $2.60 per barrel to the Mean of Platts diesel assessments.

The cost of fuel transportation and the loss from evaporation are covered from the premium.

The Numaligarh authority eyes exporting around 1.0 million tonnes of 0.20 per cent sulfur diesel to Bangladesh for 15 years through this pipeline.

Although the premium rate is higher, India's diesel consignment will save the BPC's expenditure on account of transportation of diesel to Parbatipur from the Chittagong port, a senior official of energy and mineral resources division of the ministry of power, energy and mineral resources said.

Indian diesel will be consumed by consumers in Parbatipur localities in the northern region, once the pipeline is constructed.

Diesel demand is around 1.10 million tonnes in 16 northern districts in Bangladesh, the BPC official said.

Initially, the pipeline is planned to carry around 300,000 tonnes of diesel to Bangladesh, which would gradually be increased to 1.0 million tonnes.

Officials said the pipeline will go through Panchagarh, Nilphamari and Dinajpur inside Bangladesh to reach Parbatipur oil storage tanks inside Bangladesh.

Separately, the BPC has been importing around 2,200 tonnes of 0.035 per cent sulfur gasoil (diesel) from Numaligarh every month through railway.

The corporation will import the similar quantity of diesel for 15 years through 50 wagons of Indian Railways.

It will pay a premium of US$ 5.50 per barrel to Mean of Platts for diesel assessments.

The BPC currently imports around 4.0 million tonnes of diesel annually to meet the local demand.

Bangladesh had earlier imported diesel only for a brief period from India and a small quantity of 3,500 tonnes from Bharat Petroleum in 2007.

The BPC had also imported around 400,000 tonnes of diesel from the Indian Oil Company Ltd during 2005-06, officials said.