Govt weighs $350m WB loan guarantee to tackle energy needs
Staff Reporter :
The World Bank has offered a $350 million loan guarantee facility to Bangladesh, presenting more favourable terms compared to current foreign financing options.
This initiative aims to support the country’s long-term liquefied natural gas (LNG) import requirements starting in 2025.
The guarantee facility, structured as a “revolving letter of credit,” is provided by the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
It ensures 100 per cent coverage for letters of credit (LCs) issued by local and international banks to Petrobangla, enabling secure and efficient LNG procurement.
According to a World Bank document shared with the government, the proposed guarantee facility would be one percentage point cheaper than the rates offered by the International Islamic Trade Finance Corporation (ITFC) for LNG imports.
The facility also has the potential to expand beyond $350 million, albeit with reduced World Bank coverage.
Power, Energy, and Mineral Resources Adviser Muhammad Fouzul Kabir Khan said the proposal is under positive consideration, as it offers lower interest rates and a longer repayment period, easing the settlement of supplier dues.
The Economic Relations Division (ERD) is responsible for finalising the guarantee amount and timeline for formalising the proposal.
A senior ERD official, speaking anonymously, explained that a revolving letter of credit allows buyers to make multiple payments for
goods or services without requiring a new guarantee for each transaction. The funds automatically renew once utilised, enabling uninterrupted payments.
The official added that MIGA’s proposal is a significant development for Bangladesh’s energy sector, providing a new financing window for LNG imports. However, ERD intends to negotiate lower upfront and guarantee fees.
Under the proposed facility, Petrobangla, the sole LNG importer in Bangladesh, would be able to open LCs with foreign banks such as HSBC and Standard Chartered.
The final bank selection will be made through a joint decision by the government and the World Bank. Loans secured against these LCs will have a three-month term for the LC and a nine-month repayment period.
The energy ministry has been discussing the possibility of doubling the guarantee amount with ERD and exploring options for opening LCs through domestic banks. While initially focused on LNG imports, the guarantee may eventually extend to fuel oil imports.
Currently, Bangladesh relies on ITFC for financing LNG, fuel oil, and fertiliser imports. ITFC loans, which Bangladesh has been utilising since 1977, carry an interest rate of six-month SOFR plus 1.80 per cent and a 0.2 per cent administrative fee. For FY26, the government plans to borrow $2.45 billion from ITFC for fuel oil, LNG, and fertiliser imports.
Petrobangla supplies 250-280 crore cubic feet of natural gas daily against a demand of 380 crore cubic feet, of which 100 crore cubic feet are imported. In FY24, 83 LNG cargoes were imported-57 through long-term contracts with Qatar and Oman and 26 from the spot market.
The World Bank notes that MIGA’s guarantee would offer financial advantages compared to ITFC loans, with interest rates ranging from SOFR + 0.84 per cent to SOFR + 1.01 per cent, a nine-month repayment period, a 0.90 per cent upfront fee, and a 0.30 per cent guarantee fee.
This represents a one percentage point lower interest rate and a longer repayment term than ITFC loans, which have a six-month repayment period.