As per Article 143 of the Constitution of Bangladesh, the ownership of all minerals and other things of value including hydrocarbons underlying any land of Bangladesh is vested in the Republic. This ownership is concomitant of the sovereignty of the Republic.

The Energy and Mineral Resources Division of the Bangladesh government under the Ministry of Power, Energy and Mineral Resources is vested with the power of managing hydrocarbon mining and processing. Several agencies are involved with the regulation of hydrocarbon activities. Under this division, the agency responsible for the exploration, production and distribution of oil and gas is the Bangladesh Oil, Gas and Mineral Corporation, which is popularly known as Petrobangla.

Petrobangla conducts research, exploration and development of the oil, gas and mineral resources and it enters into Production Sharing Contracts (PSC) with International Oil Companies (IOCs) for exploration and development of oil and gas.

Currently, there are 11 companies operating under Petrobangla, which are dealing with exploration, production, transmission, distribution, conservation of oil and gas resources and development of coal and hardrock mines, marketing of the mined products and alternative use of oil and gas resources. The companies are:

• Bangladesh Petroleum Exploration Company Limited (BAPEX), which is Petrobangla’s exploration company;
• Bangladesh Gas Fields Company Limited (BGFCL) and Sylhet Gas Fields Limited (SGFL), which are Petrobangla’s production companies;
• Gas Transmission Company Limited (GTCL), which is the lone transmission company;
• Titas Gas Transmission and Distribution Company Limited (TGDCL), Jalalabad Gas Transmission and Distribution Systems Limited (JGTDSL), Bakhrabad Gas Systems Limited (BGSL), Western Region Gas Company Limited (Wesgas), which are the distribution companies;
• Barapukuria Coal Mining Company (BCMCL);
• Maddhyapara Hard Rock Mining Company (MHMCL); and
• Rupantarita Prakritic Gas Company Limited (RPGCL).

On the other hand, Bangladesh Petroleum Corporation (BPC) is involved with the importation, refining and marketing of crude and petroleum products. BPC is tasked with collection and importation of crude petroleum and other refined petroleum products, processing of crude petroleum and production of different grades of petroleum products, establishment of the petroleum refinery and other associated facilities, etc.

There are eight companies operating under BPC:

• the only oil refinery of the country, eastern refinery limited (ERL);
• the three oil distribution and marketing companies, namely Padma Oil Company Limited, Jamuna Oil Company Limited and Meghna Oil Company Limited;
• two lubricant blending plants, namely Eastern Lubricants Blenders Limited and Standard Asiatic Oil Company Limited;
• one LPG bottling and distribution plant, LP Gas Limited; and
• a bitumen production company, Asphaltic Bitumen Plant.

The Hydrocarbon Unit conducts activities as a technical arm of the Energy and Mineral Resources Division. It provides technical recommendations to the Energy and Mineral Resources Division for development of the Oil, Gas and Mineral Resources sector and materials related thereto. Additionally, the Hydrocarbon Unit assists in providing views/comments to international and regional organisations on different issues pertaining to the energy sector.

The Bangladesh Energy Regulatory Commission has the mandate to regulate electricity, gas and petroleum products for the whole of Bangladesh and is mandated to issue licences to companies dealing in the energy sector in Bangladesh.

There are several national oil and gas companies in Bangladesh. Gas companies include the following:

• Bangladesh Petroleum Exploration Company Limited (BAPEX);
• Bangladesh Gas Fields Company Limited (BGFCL);
• Sylhet Gas Fields Limited (SGFL) and Gas Transmission Company Limited (GTCL);
• Titas Gas Transmission and Distribution Company Limited (TGDCL);
• Jalalabad Gas Transmission and Distribution Systems Limited (JGTDSL);
• Bakhrabad Gas Systems Limited (BGSL);
• Western Region Gas Company Limited (Wesgas); and
• Rupantarita Prakritic Gas Company Limited (RPGCL).

Oil companies include:

• Eastern Refinery Limited (ERL);
• Padma Oil Company Limited;
• Jamuna Oil Company Limited;
• Meghna Oil Company Limited;
• Eastern Lubricants Blenders Limited;
• Standard Asiatic Oil Company Limited;
• LP Gas Limited; and
• Asphaltic Bitumen Plant.

Hydrocarbon activities in Bangladesh are regulated by various laws, including the following:

• Petroleum Act, 2016;
• Petroleum Rules, 2018;
• Bangladesh Petroleum Act, 1974;
• Bangladesh Gas Act, 2010; and
• Speedy Supply of Power and Energy (Special Provision) Act, 2010.

Under the Bangladesh Petroleum Act, 1974, the government is the sole authority with the right to explore, exploit and produce petroleum within the territory, continental shelf and economic zone of Bangladesh. In addition to that, in order to produce and explore petroleum, the government has the right to enter into an agreement with any local or foreign entity. The Act also lays down provisions detailing the duties and obligations of people involved with the production of petroleum.

The Petroleum Act, 2016 deals with the importation, transportation, storage, production, refining, blending, processing and distribution of petroleum. The Act requires a mandatory licence to be obtained in order to import, transport and distribute petroleum. Under this Act, the Petroleum Rules, 2018 were introduced, laying down detailed provisions for the licensing procedure, rules for importation and the approval procedure for petroleum refineries.

The Bangladesh Gas Act, 2010 regulates the transmission, distribution, marketing, supply and storage of natural gas and liquid hydrocarbons in Bangladesh and its economic zones but does not contain any provision for the exploration of natural gas.

The Speedy Supply of Power and Energy (Special Provision) Act, 2010 was introduced to ensure uninterrupted supply of power and energy, to facilitate in taking effective measures to increase the production, transmission, transportation and marketing of power and energy, and, if necessary, to ensure the expeditious import of power and energy from abroad.

In Bangladesh, the Oil & Gas industry encompasses various activities, including upstream, midstream, and downstream operations. These activities are conducted by both the public and private sectors. Petrobangla either on its own or in joint ventures with foreign parties, represents the public sector, playing a crucial role in overseeing these activities as a regulator. Additionally, the private sector, represented by International Oil Companies (IOCs) currently operating in the country, is actively involved in carrying out the upstream activities.

The Bangladesh Petroleum Act, 1974 facilitates private sector participation in upstream exploration of hydrocarbons in Bangladesh under production-sharing contract (PSC) with the government represented by state-run Petrobangla. Petrobangla assumes multiple roles within the oil and gas sector in Bangladesh. It serves as the upstream regulator, responsible for overseeing and monitoring the Production-Sharing Contracts (PSCs) while simultaneously acting as the counterpart to these contractual agreements.

Subject to providing all financial requirements and employing the advanced state-of-the-art scientific methods, procedures, technologies and equipment generally accepted in the international petroleum industry, the IOC, as the exclusive agent, gets exclusive right to conduct petroleum operations in the contract area during the term of the PSC in exchange for the share of petroleum from the contract area to which it may become entitled as per the terms of the PSC.

Under the PSC, the IOC takes risks of resources, makes upfront investments and qualifies for reaping rewards only in the event of commercial discovery. Ideally, Petrobangla acquires gas from IOCs at PSC contract prices, mixes it with its own gas from subsidiaries and the imported LNG, then other subsidiaries transmit and distribute it to their customers. Petrobangla has right of first refusal on all gas produced by IOCs under PSC contracts; if it does not exercise this right, producers can sell to third parties in Bangladesh at a price equal to the price Petrobangla pays.

It may be mentioned here that IOCs operating in newly discovered gas fields offshore in shallow and deep waters are allowed under Offshore Model PSC 2019 (hereinafter referred to as PSC 2019) to export gas provided Petrobangla under its first right of refusal cannot purchase the gas and IOCs also cannot sell it to other third-party users in the domestic market. (PSC 2019 is being revised with many concessions, including an increase in gas prices to attract multinational companies.)

Three PSC models were developed from 2008 before the one now under development – the first in 2008, the second in 2012 and the third in 2019. Due to the global COVID-19 pandemic, Petrobangla’s plan to float a tender based on the 2019 PSC in 2020 was disrupted. In December 2020, the government-owned national gas company decided to review the PSC and enlisted the services of an international consultant to revamp PSC 2018. The objective was to enhance the attractiveness of the Model Production-Sharing Contract (PSC) for foreign investors interested in offshore gas exploration. As a result, the finalisation of the Model PSC 2023 is imminent, and Petrobangla is expected soon to invite the next round of international bidding for the country’s offshore gas blocks based on the new Model PSC 2023.

Petrobangla may ink PSC with IOCs following the strategy of initiating bidding rounds or through direct negotiation based on unsolicited proposals from IOCs under the Speedy Supply of Power and Energy (Special Provisions) Act, 2010. There are no prerequisite qualifications related to obtaining an upstream licence, including minimum financial or expertise requirements, bond requirements, and local entity or agent requirements prescribed by any laws of Bangladesh; however, when the IOC is procured through competitive tender, the bid documents shall generally prescribe any such requirements that are generally incorporated into the PSC. The PSC 2019 requires (IOC):

• to assure that it has the financial ability and technical competence necessary for carrying out exploration, development and other petroleum operations;
• to provide an irrevocable and unconditional bank guarantee to Petrobangla securing the contractor’s timely performance of the mandatory work programme and bidded minimum exploration programme under the PSC, and amounts of such bank guarantees shall be as may be agreed between the contractor and Petrobangla;
• to provide financial and performance guarantee in favour of Petrobangla from a parent company acceptable to Petrobangla, in the form and substance set out in Annex-E (EXHIBIT I), or, where there is no such parent company, financial and performance guarantee from the company itself in the form and substance set out in Annex-E (EXHIBIT II) of PSC 2019; and
• to establish within 180 days of the effective date of the PSC, a subsidiary or a branch or representative office in the People’s Republic of Bangladesh, and to register such subsidiary or branch or representative office with the Bangladesh Investment Development Authority (BIDA) as an investment project and any other related agencies in accordance with the relevant provisions of applicable law.

Apart from the above, before undertaking petroleum operations, the contractor must conduct all environmental examinations, assessments and studies required under Bangladeshi law including Initial Environmental Examination (IEE), Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) as per prevailing Environment Conservation Act, 1995 and Environmental Conservation Rules, 2023.

Also, if the contractor constructs and operates the pipeline(s) for the purpose of transporting petroleum, BERC (Bangladesh Energy Regulatory Commission) licence as per the requirement of Gas Act, 2010 and No Objection Certificates (NOCs) from the following may be needed before constructing and installing a gas pipeline:

• Ministry of Shipping;
• Armed Forces Division;
• National Hydrographic Committee;
• Department of Environment;
• Port Authority;
• Local Administration; and
• Department of Explosives.

The government gets free gas (profit gas) without making any investment and assuming risks and different bonuses (discovery bonus, production bonus), contract service fees during both the exploration and production period and earns from taxes. As per the PSC 2019, profit is shared after the foreign company recovers exploration costs (cost recovery gas). The PSC 2023 may introduce a revenue-sharing model based on total income from the gas field. The government also takes contribution towards research and development activities to petroleum or any other activities as may be determined by Petrobangla, and also gains excess profits should the discovery extend beyond the contract area into an adjacent area that is not currently under contract with Petrobangla.

The profit-sharing method for crude oil and natural gas is mentioned separately and is segregated into different production tranches in the existing PSC 2019. The share of the parties in the profit petroleum remained biddable in the PSC 2019 in the following manner.

In the case of Shallow Sea Blocks:

• Oil/Condensate/NGL: biddable 55% to 80% on tranches from 12,500 to 100,000 bb/day or above; or
• Gas: biddable from 55% to 80% on tranches from 75 to 600 mmcf/day or above.

In the case of Deep Sea Blocks:

• Oil/Condensate/NGL: biddable 50% to 75% on tranches from 5,000 to 100,000 bb/day or above; or
• Gas: biddable from 50% to 75% on tranches from 75 to 600 mmcf/day or above.

A significant development in draft PSC 2023 is the improved price formula for sale of natural gas to the domestic market. The prices in PSC 2012 and PSC 2019 were linked to HSFO FOB Singapore. However, in PSC 2023, the gas price is proposed to be offered at 10% of Brent Crude, the most traded of all the oil and gas benchmarks. This will, first, bring the benchmark at par with other sellers of natural gas around the world, and, secondly, is likely to give a better price for operators compared to the previous PSC formula.

As per the current PSC 2019, unlike the contractor operating in offshore deep sea block, contractors operating in onshore and offshore shallow blocks are responsible for paying their own taxes on all income derived in Bangladesh as per Article 19.2 and as prescribed by the Income Tax Laws, which means that no corporate tax is imposed on the operator of deep sea blocks. However, Petrobangla assumes pay and discharge on behalf of a contractor operating in deep sea blocks and the contractor’s Bangladesh income taxes out of the sums received by Petrobangla from the sale or other disposition of the Petrobangla share of petroleum under the contract; but the contractor remains responsible for paying its own taxes on any income derived in Bangladesh other than from petroleum operations.

The contractor is not liable for customs duties, VAT and sales taxes and any other taxes other than income tax of a similar nature on the import of the following.

• Equipment, spares and other consumables brought into Bangladesh by the contractor, its subcontractors or by any agent or representative on their behalf on a permanent basis.
• Equipment and materials related to drilling, directional drilling workover, mud logging, mud engineering, wireline logging, cementation, well testing (production), DST, coil tubing, snubbing and seismic/gravity/magnetic/aeromagnetic services brought into Bangladesh by the contractor, its subcontractors or by any agent or representative on their behalf on a re-exportable basis.
• Equipment or spares that are consumed after use or that become unserviceable shall not be subject to duties or taxes. Petrobangla, however, before clearance from customs, shall furnish to the NBR and the commissioners of customs a list of such consumables for which exemption shall be applicable.
• Jeeps and pick-ups solely used for oil and gas exploration, production and development and brought into Bangladesh by the contractor or its subcontractors on a re-exportable basis shall not be subject to duties and taxes. Petrobangla shall obtain prior permission of NBR regarding the total number of such vehicles before importation. Likewise, the contractor shall furnish to Petrobangla the requisite number of such vehicles before importation.
• Equipment, vehicles, spares and materials brought into Bangladesh under this SRO cannot be sold or transferred without the permission of NBR.

BAPEX, a company of Petrobangla, is a government-owned autonomous national company that is accelerating the oil and gas exploration and production activities of Bangladesh. The government of Bangladesh previously nominated BAPEX as stakeholder carrying 10% interests under two production-sharing contracts (PSCs) that were concluded under the Bangladesh Offshore Bidding Round in 2012 and BAPEX inked joint operating agreement was with the IOC to jointly operate the blocks. There has been no change in this trend and the provision for 10% carried interest for BAPEX has also been kept in the PSC 2019. The contractors are also required to engage personnel from Petrobangla on secondment in all major petroleum operations with a view to imparting transfer of technology. Petrobangla and the contractor shall mutually determine the number, discipline and tenure of secondment.

However, no changes were proposed in the Draft PSC 2023 with respect to the carried interest of BAPEX.

As per the PSC 2019, the contractor is required to give priority to local subcontractors as long as their prices, equipment, performance and availability are comparable with prices, performance and availability of international subcontractors and to give preference to locally manufactured materials, equipment, machinery, supplies and consumables so long as their quality, price and time of delivery are comparable to internationally available materials, equipment, machinery, supplies and consumables c.i.f. Bangladesh.

The contractor is also required to maximise the employment of Bangladeshi nationals possessing the requisite qualifications and experience in petroleum operations and to ensure that the employment of Bangladeshi nationals, including administrative, technical and executive management positions, be maintained in the following proportions.

During the Exploration Period:

• initial Exploration Period not below 20% (in the PSC 2023, it is proposed to be 10%); or
• extended Exploration Period not below 50%.

During the Production Period:

• first five years – not below 60%;
• next five years – not below 75%; or
• after ten years – not below 90%.

Contractors are also required to establish a programme, satisfactory to Petrobangla, to train personnel of Petrobangla and its affiliates, locally and abroad, to develop the capability of such personnel to effectively perform their duties.

As per PSC 2019, in the event of commercial discovery, the production period is 20 years from the date of Petrobangla’s approval of the development plan for an oil field and shall be 25 years from the date of Petrobangla’s approval of the development plan for a gas field. So, the approval by Petrobangla of the development plan for an oil field or for a gas field is crucial in order to proceed with the development and production.

The contractor is required within 60 days of contract effective date to submit a proposed work programme and budget with full justification and detailed breakdown to Petrobangla for the contract area for the first calendar year. At least 90 days prior to the beginning of each subsequent calendar year, the contractor is required to submit a work programme and budget to Petrobangla with full justification and detailed breakdown for the contract area setting forth the exploration operations that the contractor proposes to carry out during the ensuing calendar year. The contractor is also required to commence exploration operation including the drilling as per the approved work programme.

Fiscal Terms

The fiscal terms that are contained in PSC 2019 can be summarised as follows.

• Exploration period: the exploration period for offshore blocks is for a period of maximum eight years consisting of initial exploration period of five years and subsequent exploration period of three years. The exploration period for onshore blocks is seven years consisting of initial exploration period of four years and subsequent exploration period of three years.
• Contract term is 20 years for oil and 25 years for gas after approval of the development plan.
• Contractor can dispose gas freely but Petrobangla has first right of refusal and exports are not allowed for onshore blocks but PSC 2019 preserves export provision in case of offshore blocks.
• Biddable profit share on a sliding scale.
• Relinquishment requirements: at the end of the initial exploration period, the contractor has option to relinquish the entire area after completion of the minimum work programme or to proceed to the subsequent exploration period relinquishing 50% of the contract area in a single portion.
• Extension: the contractor’s proposal for an extension is required to be submitted to Petrobangla at least 60 days prior to the expiry of the then current period. Such proposals are required to be accompanied by a bank guarantee covering the minimum work obligation for the proposed extended period.
• Maximum annual cost recovery for the offshore gas from shallow sea blocks is 55%, and 70% for the offshore gas from deep sea blocks per calendar year.
• Offshore gas prices: arithmetic average Asian Petroleum Price Index for High Sulphur Oil 180 CST FOB with a floor at USD100 per tonne and ceiling at USD215 per tonne.
• Local procurement: contractor is required to give preference to locally manufactured materials, equipment, machinery, supplies and consumables so long as their quality, price and time of delivery are comparable to internationally available materials, equipment, machinery, supplies and consumables c.i.f. Bangladesh.
• Carried interest of 10% for BAPEX.
• Mandatory work programme: seismic + drilling (for onshore); seismic only (offshore shallow and deep-sea blocks).
• Biddable work programme: shallow water and deep water – geology, seismic, drilling, other surveys.
• Corporate tax: tax imposed for onshore and shallow sea blocks but no corporate tax for deep water blocks.

Risk and Liability Regime

• The contractor receives no compensation for its services, nor any reimbursement of its expenditures under PSC, except for the share of petroleum from the contract area to which it may become entitled as per the terms. If there is no commercial discovery in the contract area or if the production achieved from any oil field or gas field developed by the contractor is insufficient to reimburse the contractor, it has to bear its own losses.
• The contractor has to obtain insurance coverage during the term of the PSC, for and in relation to petroleum operations.
• In case of assignment by the contractor of any or all of its rights, interests and obligations under the PSC to any of its affiliates, the assignor remains jointly and severally liable with its affiliate for all obligations under the PSC.
• In case of abandonment, the contractor is required to continue to be liable after the term of PSC, for any damage, claim, cost or expense arising from the petroleum facilities, due to causes which have arisen or which have accrued during the terms of this contract and which are attributable to the wilful misconduct or negligence of the contractor.

Abandonment

• During the duration of the Production-Sharing Contract (PSC), the contractor is required to submit an annual comprehensive annual work programme and budget (AWP and B) to Petrobangla for review and approval.
• Petrobangla holds the authority to instruct the contractor regarding the abandonment of specific petroleum facilities or set the timeline and schedule for abandonment within the contract’s term while reviewing and approving the AWP and B.

Termination

• The government retains the right to terminate the contract by providing the contractor with a written notice of intention to terminate, with a minimum period of 60 days.
• The termination would be subject to the contractor’s failure to remedy the specified failure within this given period. The detailed obligations and requirements that the contractor must fulfil are outlined extensively in the PSC.
• The contractor possesses the right to terminate the contract by choosing to relinquish the entire contract area, in accordance with the provisions specified in the PSC. The specific conditions and procedures for exercising this right of termination and relinquishment are outlined in detail in the PSC.

The contractor, subject to obtaining prior written approval from Petrobangla, has the right to assign any or all of its rights, interests and obligations under this contract to any of its affiliates. Any affiliate that becomes the assignee must possess technical and financial competence equal to that of the assignor. The assignor shall continue to be jointly and severally liable with its affiliate for all obligations arising from this contract.

With the prior written approval of the government, the contractor has the ability to transfer some or all of its rights, interests and obligations under this contract to a third party that is not affiliated with the contractor. However, certain conditions including fulfilling existing obligations, demonstrating financial and technical competence, submitting the necessary assignment documents, and providing a valuation of the assignment need to be met for the government to consider such a request.

The cost of any transfer or related taxes, stamps, duties, charges or other fees from any assignment would be borne by the contractor. As per Article 22 of Schedule-I to the Stamp Act, 1899 as substituted by the Finance Act, 2022, the stamp duty applicable to assignment is 1.5% of value of the consideration, with maximum limit of BDT20 million.

There exists no OPEC or other multinational quota or any other restrictions on production rates that may apply (such as state-level proration) in the existing PSC regime in Bangladesh.

The current scenario of private investment in the sector is as follows.

LNG in Private Sector

Petrobangla was in need of installing sufficient LNG receiving and distribution facilities to support domestic gas demand requirements and the country had two LNG import terminals commissioned in 2018, of which one was set up by Excelerate Energy of United States at Moheshkhali of Cox’s Bazar with 500 million cubic feet per day, while another with the same capacity was set up by the Summit Group in the same area.

Both the private firms had attained permission earlier to build their first FSRUs (Floating Storage and Regasification Unit) and supply regasified LNG under the special law, 2010 on BOOT basis as Petrobangla did not float any international tender to select contractors to do the job. State-owned Petrobangla has moved to set up three more liquefied natural gas terminals in addition to the existing two currently being operated to regasify imported gas.

Apart from the permitted private investment in building LNG-based terminals whereby Petrobangla purchases services under a Terminal Use Agreement (TUA) in exchange for compensation for services by executing that Agreement with the terminal company, the government adopted a policy in 2019 to open the import of liquefied natural gas (LNG) to the private sector, enabling them to sell the fuel to clients of their choice.

LNG in the current gas market structure in Bangladesh can be summarised as follows.

• As a single buyer of gas, Petrobangla continues to mix the higher priced LNG imports with gas from PSCs and its own gas. GTCL and Petrobangla subsidiaries then transmit and distribute the gas to its customers at a bundled gas price set by the government.
• Private LNG importers sell gas at unregulated prices to customers willing to pay the price.

It is worth noting that although the policy allows private participation in the LNG sector, there has not yet been any precedent of such participation at the private level.

LPG

The government’s decision to stop providing pipeline gas connections to households due to depleting natural gas reserves has driven the adoption of LPG. Additionally, rising living standards in rural areas have increased the use of LPG for cooking and heating. This shift has led to expanded distribution networks, more refilling stations, and reduced reliance on traditional biomass fuels.

In addition to the state-owned producers, private players contribute to the LPG supply by importing bulk LPG from foreign refineries or traders. These private entities play a role in meeting the demand for LPG within the country.

The government has already decided to replace natural gas with Liquefied Petroleum Gas (LPG) and stopped supplying natural gas through pipeline as cooking fuel. Gazettes related to LPG policies have been published by the government for importing, processing/bottling, marketing and distribution for diversified uses of LPG in the country, aiming to encourage the private sector to join with the LPG industry in doing businesses and creating a market so that products at reasonable price and of extraordinary quality can easily be supplied to the doorsteps of customers.

Fractionation Plants

The Bangladesh Petroleum Corporation (BPC) serves as the central nodal organisation in the petroleum sector. It oversees crucial activities such as crude oil and product imports, oil refining, and the marketing of finished petroleum products.

Prior to 1997, the oil business in Bangladesh was solely under government control as a monopoly. However, the scenario changed when a private company ventured into the fractionation of gas condensate extracted from gas fields. At present, gas condensates are fractionated by small-scale fractionation plants owned by Petrobangla, BPC, and private entrepreneurs.

The private refineries generally buy condensates produced in gas fields run by state-owned Petrobangla and other international oil companies (IOCs) under a government contract to produce fuels such as petrol, diesel, octane and kerosene. The refineries sell refined condensate to BPC’s marketing companies, which are Padma Oil Company Limited, Meghna Petroleum Limited and Jamuna Oil Company Limited.

Private Petroleum (Crude Oil) Refinery

There has been a significant policy change only recently by the government as the Ministry of Power, Energy and Mineral Resources moves towards ending its fuel oil monopoly by drafting a new policy named “Storage, processing, transportation and marketing of crude oil after importation at the private sector Policy 2023” that would allow the private sector to import and refine crude oils and market their products through their own network. The initiative to allow fuel oil refinery operations to the private sector is being pursued in accordance with regulatory framework as enshrined in the Bangladesh Petroleum Corporation Act of 2016 and the National Energy Policy of 1996.

According to the proposed policy, private refineries must sell at least 60% of their fuel oil products to the government-owned BPC at a price set by the government during the initial three years. The remaining 40% of the fuel oil can be sold by the refineries through their own marketing channels. Once they meet their domestic sales commitments, these refineries can export excess products and are also permitted to establish fuel stations on roads, highways, Upazilas and metropolitan areas to sell their produced fuel oil. 

Private refiners must meet specific eligibility criteria as per the outlined draft policy. To be considered, a private enterprise needs to have achieved a minimum annual turnover of BDT50 billion or its equivalent in US dollars for at least three out of the past five years. Additionally, the enterprise must establish a refinery with a crude fuel oil processing capacity of at least 1.5 million metric tonnes per year, either independently or through joint ownership. The policy mandates that the entity possess a minimum of 80 acres of land for the refinery set-up and a storage facility with a capacity of at least 200,000 metric tonnes to support operations. Upon final approval, the private entrepreneur is also required to furnish a bank guarantee of BDT2.5 billion in favour of the BPC as a security deposit before commencing commercial activities.

GTCL, which stands for Gas Transmission Company Limited, is a midstream company under Petrobangla. It is responsible for owning and operating the high-pressure gas transmission system in the country. GTCL holds a natural monopoly in this sector. The primary role of GTCL is to evacuate gas from various sources, including the national production companies such as Bangladesh Gas Fields Company Limited (BGFCL), Sangu Gas Fields Limited (SGFL), and Bangladesh Petroleum Exploration and Production Company Limited (BAPEX).

To facilitate smooth import of LNG and supply the regasified LNG to consumers, the private sector is allowed to build international standard jetties or platforms, storage tanks, regasification plants and pipeline networks. The private sector LNG importers have also been allowed under Policy 2019 to use the natural gas pipeline or distribution network of Petrobangla to supply their regasified LNG to end users with its prior permission and on payment of the wheeling charge to GTCL. Thus, private parties may have access to GTCL pipelines in terms of paying wheeling charges.

LNG

The LNG sector was opened to private investors following a policy adopted by the government allowing them to make the necessary infrastructure and supply directly to the customers.

Under Section 5(a) of the LNG Import Policy for Private Sector, 2019, to facilitate the import of LNG and subsequent supply of the regasified LNG to consumers, any private company, with permission from the Ministry of Power, Energy and Mineral Resources, is able to build international standard jetties or unloading platforms, storage tanks, regasification plants and all necessary infrastructure, which includes pipeline networks.

The Gas Act, 2010 has been passed to regulate the transmission, distribution, marketing, supply and storage of natural gas and liquid hydrocarbon in the land territory of Bangladesh and in its determined sea boundaries and economic zones. The authority empowered to apply the provisions of the Gas Act is the Bangladesh Energy Regulatory Commission (BERC), which was established pursuant to the Bangladesh Energy Regulatory Commission Act, 2003.

In order to engage in LNG business, license from BERC would be required along with other necessary licences, including the following:

• permission from the relevant local authority for any construction that may be required onshore;
• requisite permissions from the Department of Environment (Site Clearance; Initial Environmental Examination Report; Environmental Impact Assessment; and, after completion of construction of the LNG infrastructure, Environmental Clearance Certificate);
• all import permits, certificates, licences and other required consents allowing the LNG operator and its contractor(s) to import into Bangladesh all plant, machinery, equipment, spare parts, materials and supplies required for the terminal and the pipeline; and
• permission for transporting chemicals, toxic wastes and hazardous materials on land and water routes from the Department of Environment/Department of Explosives (as applicable).

LPG

The company carrying out the distribution and marketing activities of LP gas through importation, production, storage, transportation, setting up of terminals, setting up of bottling plants and setting up of LP gas dispensing stations (dispensing/refuelling stations) for autogas, and setting up conversion plants for the purpose of fuelling the engines of autogas with LP gas is defined as the “LP gas operator”.

No organisation can conduct business as an LP gas operator without the prior approval of the government and LP gas operator’s licence. To conduct business, the LP gas operator requires initial approval from the government in the manner described in the LP Gas Operational Licensing Policy, 2017, and later final approval from the government as per the contract format prescribed by the government, which is to be executed with BPC, and the said signed agreement shall be deemed as LP Gas Operator’s Licence. In the case of import and export of LPG, under Section 2.2 of the LPG Bottling Plant Construction Policy, 2016, EMRD must have no objection, and approval from the Ministry of Commerce should also be obtained.

In order to engage in LNG business, a licence from BERC would be also be required, along with other necessary licences, including the following:

• licence to import gas cylinders under Rule 27 of the Gas Cylinder Rules, 1991;
• approvals from the Department of Explosives (DOEXP) with regard to storing and bottling LPG;
• approvals and/or no-objection certificates from the DOEXP for installing and using the onshore pipelines for carrying LPG to the Chittagong Terminal;
• approval from the BPC with regard to the company undertaking its business activities in Bangladesh;
• registration certificate issued by the Bangladesh Standards and Testing Institution (BSTI);
• cross-filing approvals from DOEXP with regard to providing LPG bottling services to and obtaining LPG bottling services from Petroleum Products;
• fire licence issued by the Bangladesh Fire Service & Civil Defence;
• factory licences issued by the Department of Inspection for Factories and Establishments (DIFE); and
• certificate of membership with the LPG Operators Association of Bangladesh (LOAB).

Apart from the above, an agreement must be executed with BPC after obtaining permission from the government to carry out LPG bottling operations.

Petrochemical Plants

In order to establish a private sector petrochemical plant, the following would be required as per the Petrochemical Plant Establishment and Operation at Private Level Policy, 2019:

• approval from EMRD;
• agreement with BPC;
• registration certificate issued by the Bangladesh Standards and Testing Institution (BSTI);
• fire licence issued by the Bangladesh Fire Service & Civil Defence;
• factory licences issued by the Department of Inspection for Factories and Establishments (DIFE);
• BIDA approval (when applicable); and
• approvals from the DOEXP.

LNG

Under the LNG Import Policy for Private Sector, 2019, private parties, local or foreign, having experience of constructing or maintaining heavy industries in the power and energy sector are able to import LNG, regasify it and sell the regasified LNG to consumers of their choice subject to obtaining NOC from EMRD. The private sector, however, is allowed to sell the “surplus” regasified LNG, not exceeding 25% of total imported volume, to the state-run Petrobangla, which markets petroleum products locally at a price to be determined by it.

However, the private sector LNG importers are able to use the natural gas pipeline or distribution network of Petrobangla to supply their regasified LNG to end users with its prior permission and on payment of the wheeling charge.

LP Gas

The LP gas operator may distribute and market LP gas throughout Bangladesh for domestic, autogas, commercial and industrial use either directly or by appointing a Master Franchisee or Franchisee or Exclusive Distributor or Distributor and Dealer in the manner described in Clause 1.5 of LP Gas Operational Licensing Policy, 2017. Subject to the NOC from EMRD and approval from the ministry of commerce, LP gas in bottled or bulk form may be exported.

Petrochemical Plants

In order to import raw materials (Blended Feedstock/Condensate/Napthula/Crude Oil) the company needs to conclude an agreement with BPC. If crude oil or blended crude oil is used as raw material, the company needs to provide royalty to BPC on such imported raw materials. Diesel produced as a by-product in the petrochemical industry needs to be sold to BPC at the government regulated price or may be exported but cannot be sold directly in the local market or to any institution or company. But furnace oil produced as a by-product may be sold to BPC and to any power plants in the country or may be exported subject to providing monthly accounts to BPC. Other fuels like Jet Oil, Octane, Petrol, Kerosene, etc, can be exported subject to NOC from BPC but cannot be sold directly in the local market. If BPC is interested in buying them, a Sale and Purchase Agreement (SPA) shall be executed.

There is no such preferential tax treatment of the incomes with regard to midstream/downstream operations. The standard corporate tax is set at 27.5%.

However, a bundle of tax benefits offered to the developer of FSRU operating as a terminal company in Bangladesh are referenced in the standard Implementation Agreement.

There is no such special right given to the national oil or gas company in connection with midstream/downstream licences.

There are no such local content requirements applicable to midstream/downstream operations by private investors in the country, except for the fact that if any company wants to employ foreign employees, the company would be required to employ five Bangladeshi nationals for each such foreign national, and this is a precondition to obtaining work permits for foreign employees from the Bangladesh Investment Development Authority.

As discussed earlier, the LNG sector, LPG sector and the establishment of refineries have been made open to private investors, and the licensing regime for each of these sectors has been discussed above. The relevant export provisions for LPG and the by-products produced in the petrochemical industries are discussed above as well. There is no such legal regime with regard to withdrawal, termination and abandonment rights and obligations as long as the operation is in the private sector concerned.

However, the LPG operator as a licensee is required to obtain and keep in force policies of insurance with regard to the licensee’s liability to members of the public against fire and explosion in or about units of its establishment, and is required to submit copies of such policies to the BPC (licensor) for the record; policies are required to be renewed every year.

The relevant law is the Acquisition and Requisition of Immovable Property Act, 2017. Under Section 4(a) of the Act, whenever it appears to the Deputy Commissioner that any property in any locality is needed or is likely to be needed for any public purpose or in the public interest, the Deputy Commissioner shall cause a notice to be published at convenient places on or near the property in the prescribed form and manner stating that the property is proposed to be acquired. In case of acquisition of immovable property for any non-governmental person or organisation, whatever the amount of immovable property, sanction of the government (through the relevant ministry) must be taken before initiation of acquisition proceedings.

It has been held by Bangladesh’s Apex Court, in the case of Razab Ali and others v Province of East Pakistan and others, reported in 12 DLR 524, that even though, under a proposed acquisition process by a requiring body, a private company would benefit, ultimately, if it served a large number of members of the public, then the acquisition would qualify as for a public purpose and would be valid under the law.

As discussed in 3.2 Downstream Operations Run by a National Monopoly: Rights and Terms of Access, GTCL is responsible for owning and operating the gas transmission system in the country while the BPC is responsible for owning and operating the oil transmission systems. As per Petroleum Rules, 2018 enacted under Petroleum Act, 2016 (the “2016 Act”), the Department of Explosives is the licensing authority that regulates all matters relating to transportation of petroleum products (“petroleum” means any liquid hydrocarbon or mixture of hydrocarbons, and any inflammable substance and mixture (liquid, viscous or solid) containing any liquid hydrocarbon), including the construction of petroleum pipelines as per the 2016 Act, or of gas pipelines as per the Natural Gas Safety Rules, 1991.

However, Bangladesh being a unitary state, there is no such basic difference in regulatory treatment between an intra-state pipeline system and an interstate pipeline system.

There is no such regulation restricting third-party access to privately constructed infrastructure. So, this may be possible subject to the approval/NOC from the regulator (as applicable). However, Regulation 2.6 of LPG Bottling Plant Policy, 2016, explicitly states that no LPG bottling plant or entity shall engage in the act of distributing and commercialising gas through the process of bottling, commonly referred to as “cross-filling”, cylinders that are the property of a separate plant or entity. This restriction applies solely to cylinders that do not belong to the aforementioned plant or entity.

However, cross-filling activities may be conducted under the condition of obtaining explicit written authorisation from the Licensing Authority, accompanied by the consent of the relevant institutions. In the event that such authorisation and consent are granted, the responsibility for any liability associated with said cylinders shall be borne exclusively by the consenting institutions.

There is no such restriction on the same entity providing service in multiple segments of the market.

As discussed earlier, diesel produced as a by-product in the petrochemical industry needs to be sold to BPC at the government-regulated price or may be exported but cannot be sold directly in the local market or to any institution or company. However, the furnace oil produced as a by-product may be sold to BPC and to any power plants in the country or may be exported subject to providing monthly accounts to BPC. The LP gas operator may distribute and market LP gas throughout Bangladesh for domestic, autogas, commercial and industrial use either directly or by appointing a Master Franchisee or Franchisee or Exclusive Distributor or Distributor and Dealer in the manner described in Clause 1.5 of the LP Gas Operational Licensing Policy, 2017.

Also, International Oil Companies cannot sell their share of natural gas produced under the PSC in the domestic market except to Petrobangla. However, IOCs have the option of selling gas directly to a third party in the domestic market, at a price and on such other contractual terms as they may negotiate and agree, subject to Petrobangla’s right of first refusal.

As per the Export Policy Order 2021–2024 (EPO) issued by the Ministry of Commerce, all petroleum and petroleum products except those produced from natural gas (such as naphtha, furnace oil, lubricant oil, bitumen, condensate, MIT and MS) are export-prohibited products. However, this prohibition does not apply to the export of petroleum and LNG as shares, as per agreement, of the foreign investment companies under Product-Sharing Contracts.

As per the EPO, petroleum and petroleum products produced from natural gas (such as naphtha, furnace oil, bitumen, condensate, MTT and MS) can be exported subject to “no objection” from the Energy and Mineral Resources Division (EMRD) of the Ministry of Power, Energy and Mineral Resources (MPEMR). However, lubricating oil can be exported unconditionally under intimation to the Energy and Mineral Resources Division about the volume of export.

Specific export provision for LPG and by-products produced in petrochemical plants are discussed above. Subject to the other necessary permits and approvals, additionally, an ERC (Export Registration Certificate) would be required in order to be able to export.

The installation of cross-border pipelines is governed by governmental policies and bilateral agreements between countries, without the presence of a distinct legal framework specifically for such construction. Petroleum pipelines fall under the jurisdiction of the BPC (Bangladesh Petroleum Corporation), while gas pipelines fall under the authority of Petrobangla. Regardless of the type, obtaining authorisation from the Department of Explosives is mandatory for installing pipelines within Bangladesh’s territory.

In the absence of specific regulation restricting the transfer of operations and assets between private owners, the operation and assets of midstream/downstream companies would be transferable. However, the LPG operator as a licensee cannot in any way transfer or assign any rights under the licence to any person. So, prior approval would be required for any such transfer or assignment. The provision of transfer of interest in the case of a private FSRU developer would be regulated by the terms of the Terminal Use Agreement.

Foreign investors are allowed to invest in the Bangladeshi energy sector, to the extent it has been opened up to private investors. The oil and gas sector being a controlled industry as per the Industrial Policy, 2022, a potential investor may set up in collaboration with local investors or may be wholly owned by the foreign investors subject to approval/NOC from the relevant government department. The LNG Policy, 2019, the LPG Licensing Rules, 2017, and the Petrochemical Plants Operation Rules, 2019, contain relevant provisions for the approval of or NOC from the government. The Foreign Private Investment (Promotion and Protection) Act, 1980 and bilateral investment treaties ensure the protection of foreign investment in Bangladesh against nationalisation and expropriation. It also guarantees non-discriminatory treatment between foreign and local investments.

There are currently no sanctions in place.

The Department of Environment is the government body responsible for the protection and conservation of the environment in Bangladesh and it falls under the Ministry of Environment, Forest and Climate Change. Conservation of the environment in Bangladesh is mainly governed by the Bangladesh Environment Conservation Act, 1995 and its accompanying rules, the Environment Conservation Rules, 2023, the Bangladesh Environment Conservation (Amendment) Act, 2010 and the National Environment Policy, 2018.

The Bangladesh Environment Conservation Act, 1995 (the “Act”), defines an ecologically critical area, imposes restrictions on activities that are considered detrimental to the environment and lays down the steps to be taken in case of environment pollution and the need to mitigate said pollution. The Act also requires an environmental clearance certificate to be obtained in order to operate any industrial establishment.

The Environment Conservation Rules, 2023 (the “Rules”), categorise different projects by colours and the impacts the projects have on the environment. The Rules provide that while some projects only require an Environment Clearance Certificate (ECC), others might require a Location Clearance Certificate as well as an Environmental Impact Assessment (EIA) to be conducted. Furthermore, an Environmental Management Plan (EMP) is also required to be submitted to the Department of Environment.

A violation of any of the provisions of the Act or the Rules will be tried under the environment court and the offender may be punished with imprisonment or a fine, or both.

The National Environment Policy, 2018, provides sector-based environmental policies. It requires that all laws be amended in light of the policies provided, and every Ministry, Department, Office and Organisation must act in compliance with the policies.

As per Section 12 of the Bangladesh Environment Conservation Act, 1995, before the commencement of any project of any kind, an environment clearance certificate has to be obtained from the Director General of the Department of Environment. Section 7 of the Environment Conservation Rules, 1975, categorises each industry based on its location and the impact it might have on the environment. Hydrocarbon projects fall under the red category. In order to obtain an environment clearance certificate for projects under the red category, a prescribed form has to be completed, as provided in the Rules. Along with the form and the prescribed fee, some accompanying documents need to be submitted. The documents include the following:

• a feasibility study report of the project;
• an Initial Environmental Evaluation (IEE), which should be accompanied with the terms of reference for an EIA – the EIA study must be based on terms of reference that have the DoE’s prior approval;
• Environmental Management Plan report;
• NOC from the local authority; and
• any other required information.

Once the application for the environment clearance certificate is received, the certificate has to be issued within 60 working days of such receipt. Based on the scope of work described in the IEE, the EIA report must be conducted and Effluent Treatment Plant (ETP) submitted for approval. Once submitted, the EIA and ETP have to be approved within 60 working days.

Clause 36 of the Offshore Model PSC, 2019 states that it is expected that hydrocarbon projects will have an impact on the environment, therefore, contractors will have to use advanced techniques, practices and methods of operation for the prevention of environmental damage and biodiversity loss during their operations.

It is required that the contractor shall take all required steps to prevent any harm to the environment and, if that is not possible, then minimise the damage as much as possible. Furthermore, the contractors are required to provide adequate compensation in case of any harm caused to any person or the environment due to the project. In addition to that, contractors are expected to comply with all applicable laws, environmental and conservation acts and rules and the reasonable requirements of the government from time to time.

Clause 35 of the Offshore Model PSC, 2019 lays down provisions for abandoning. It states that the contractor would be responsible for abandonment and shall carry it out in accordance with the Abandonment Work Programme and Budget, containing detailed plans for the Abandonment of Petroleum facilities and the itemised cost estimates for its implementation, approved by Petrobangla.

There will be a fund that the contractor will have to start paying to Petrobangla, known as the “Abandonment Fund”, on the first anniversary of the First Commercial Production. However, the contractor shall not have to be liable for both payments into the Abandonment Fund and the actual cost for Abandonment of Petroleum facilities carried out by the contractor.

No well(s) are to be abandoned and no cemented string or other permanent form of casing are to be withdrawn from any well which is proposed to be abandoned, without the prior written consent of Petrobangla.

Well(s) cannot be abandoned and cemented string or other permanent form of casing cannot be withdrawn from any well without the prior written consent of Petrobangla, and Petrobangla has the authority to stop any well from being plugged or any other work from being executed for that purpose. Any salvage operation from any abandoned well has to be accounted for and reported to Petrobangla.

In terms of climate change, Bangladesh is a ratifying party to the Paris Agreement as well as the Framework Agreement on International Solar Alliance to promote solar energy and thus mitigate adversities of climate change. Furthermore, carbon tax is being imposed on owners of multiple vehicles to curb environmental pollution.

Bangladesh has joined the Global Methane Pledge 2021 and 11 priority mitigation measures were included in Bangladesh’s National Action Plan on Short-Lived Climate Pollutants (SLCP). Six of the measures target major black carbon sources, and five target major methane sources. It is expected that the reduced emissions will avoid 9,000 premature deaths in 2030.

In Bangladesh, local governments (including municipalities and city corporations) are not permitted to limit oil and gas development for environmental or any other reasons because the development, management and operation of oil and gas are being controlled by the central government and its agencies. In Bangladesh, the Ministry of Power, Energy and Mineral Resources governs the regulation of oil and gas development and has the authority to grant licences for oil and gas production.

If the local government needs to limit oil and gas development, it must consult central government or central government agencies to order any limit on oil and gas development to protect the environment or for any other reason.

If the local government raises any concern regarding the production or exploration of oil and gas for environmental or other reasons, then the central government or its agencies thoroughly investigate the matter and limit the oil and gas development, if necessary.

In terms of the upstream development of unconventional upstream interests, Bangladesh is yet to frame any law or regulation that is specific to this matter. Therefore, there are no special schemes or regulatory limitations relating to shale, heavy oil and coal-bed methane or hydraulic fracturing.

Please refer to 3.1 Forms of Private Investment: Midstream/Downstream, 3.2 Downstream Operations Run by a National Monopoly: Rights and Terms of Access, 3.3 Issuing Midstream/Downstream Licences and 3.4 Fiscal Terms and Commercial Arrangements: Midstream/Downstream, which contain relevant discussion for the LNG sector.

In Bangladesh, the energy transition considerations are significantly affecting the development and utilisation of oil and gas upstream and midstream assets. In order to reduce greenhouse gas emissions, there is now increased demand to produce and use renewable energy.

Upstream and midstream operators are taking steps to reduce greenhouse gas emissions, including promptly checking leakage in pipelines that can cause methane emissions, doing regular checks, and replacing old damaged pipes, etc.

By implementing various measures, Bangladesh is trying to reduce its greenhouse emissions and setting targets to significantly reduce the country’s greenhouse gas emissions by the year 2030.

One of the unique and interesting aspects of the hydrocarbon industry in Bangladesh is that the country significantly relies on its domestic natural gas reserves. Bangladesh has many large gas fields, which helps to boost the country’s natural gas resource.

Around 66% of electricity consumption in Bangladesh is being sourced through natural gas. Bangladesh has a centralised system to manage the production of natural gas through Petrobangla. Petrobangla has significant control over the operation and management decision-making power, which helps the country to maintain smooth operation of production and management of the country’s natural gas reserve.

The oil and gas regulations in Bangladesh have seen some changes in recent times.

The Bangladesh Oil, Gas and Mineral Corporation Act, 2022 replaced the Bangladesh Oil, Gas and Mineral Corporation Ordinance, 1985 through which Petrobangla was established. The 2022 Act, among other things, envisages the establishment of the Bangladesh Oil, Gas and Mineral Corporation as a “body corporate” having an authorised capital of BDT50 billion and a paid-up capital of BDT2 billion.

The 2019 version of the Offshore Model PSC is being reviewed and the new draft, PSC 2023, is pending (awaiting cabinet approval) (as at publication of this guide, August 2023). Provision for the exportation of gas has been restored and the gas price has also been increased in the 2023 draft. Furthermore, certain financial incentives have been included in order to attract more international oil companies.

The Petroleum Act, 2016 replaced the Petroleum Act, 1934.