When the ‘B’ in BPC starts to stand for Bashundhara

A letter is sitting inside the Energy Ministry right now. As Waadaa's investigation revealed this week, the ministry is entertaining, in fact fast-tracking, a decision to allow Bashundhara to become a BPC alternative. The usual surface-level debate goes privatization vs government monopoly. However, this could not be further from the truth. 

To see what is on the table, first we need to unpack what BPC does.

BPC, the Bangladesh Petroleum Corporation, is a state-owned enterprise, collectively owned by the citizens and taxpayers of Bangladesh. It is the government's mandated fuel importer. BPC buys crude and refined petroleum from the global market, processes the crude through Eastern Refinery, and sells the products onward. 

State-owned oil marketing companies, Padma, Meghna and Jamuna Oil, distribute them to the dealers, meaning your petrol pumps. In this process, BPC keeps the lion's share of the gap between the global price and the local price. The government takes its own cut on top: NBR collects around 36 taka in duties on every imported litre, which at the moment is more than BPC loses on that same litre. 

That is worth remembering, because it explains why the treasury feels no urgency to rescue BPC.

After global oil prices crashed in mid-2014 and stayed low for years while prices inside the country stayed where they were, BPC made huge profits, roughly 50 thousand crore taka between 2016 and 2022. This created a cushion on BPC's balance sheet, and that cushion worked as the buffer when the Ukraine war price shock arrived. 

During that shock a portion of the buffer was depleted, precisely so that the government would not have to violently increase local fuel prices. The profits BPC made in the earlier years worked to subsidize fuel for the end user in the later ones. 

BPC harvests profits when oil is cheap, and bleeds when oil prices are high. It is in essence a fuel price stabilization operation, and it has run well enough that it has not taken a taka of budget subsidy since 2013.

The current war is this buffer's second test, and a harder one. BPC's bank deposits have fallen from about 38 thousand crore taka to around 26 thousand crore taka in a few months, and it has reported losing at least 12 thousand crore taka buying fuel since the fighting began.

Which is where the letter comes in. Bashundhara's business case is that of an arbitraged trade, one that brings BPC's profit mechanism under its authority while the losses stay with BPC and the taxpayers. 

The application's own volumes show the scale. Bashundhara has asked to import and sell 30 to 40 percent of the diesel BPC sells, around 50 percent of the octane, 33 percent of the petrol, a fuel Bangladesh does not import at all, and close to 100 percent of the furnace oil BPC supplies, delivered directly to power plants. 

Altogether, roughly 40 percent of everything BPC sells, possibly more. BPC has always been the only oil marketing and distribution company; Bashundhara now wants a piece of the action.

Now let's think about two scenarios.

Scenario 1: Oil price is rising in the global markets

This changes nothing for BPC. It is obligated to maintain supply inside the country, so it buys expensive oil from the global market and sells it cheaper at home, incurring a loss on every litre sold. 

The loss is covered by the reserve it built in the good times. We saw a demonstration only months ago: through March and April, pumps queued for weeks while the depots held record stock, and the queues disappeared the day the price was finally raised.

Bashundhara, on the other hand, would have the 'option' to supply, not an obligation. India has already shown how this goes. When global prices spiked in 2022, its private oil marketing companies first tried to cut back supply. 

When the regulator would not allow that, they asked their dealers to add a markup, deliberately setting a price at which no buyer would buy from them, so that they would not have to supply. The pump price was fixed by the state, so the one thing left in their control was whether the fuel was available at all.

And when oil is expensive, Bashundhara, even for its own various factories, will buy fuel from BPC, simply because BPC's fuel is subsidized. In the bad months Bashundhara would not be BPC's competitor. It would be BPC's customer.

Bashundhara, in its letter, declares a storage capacity of 3.15 lakh tonnes. That alone can hold close to one month of nationwide diesel demand. Our fuel prices move by monthly notification, so a large correction is visible before it arrives. 

Profit maximization is filling the tanks before the notification, releasing the fuel after it. A hike the size of April's, 15 taka a litre, would raise the value of that stored fuel by roughly 550 to 600 crore taka in a single day. In commodities trading this is pure arbitrage profit. Here it would be enabled by the government.

Scenario 2: Oil price is dropping in the global markets

Local prices fall slowly and reluctantly, so for months the local price sits above the global one. This is exactly the period in which BPC has historically rebuilt its rainy-day buffer. Under the new arrangement, it no longer would. Bashundhara would exercise the full capacity under its licence, push maximum volume, and earn the fat margin on every litre sold. 

These are the very litres and margins that built BPC's buffer in the first place.

The quota Bashundhara has asked for is not monthly. It is yearly. It can supply nothing in a losing month, let BPC suck up the losses, then carry the unused quota forward and supply double or triple once margins recover. It can time its quota so that, year after year, it sells only the most profitable litres of the national demand.

Now let's say you are BPC. What would you do? Your buffer is thin, your profitable volume has walked out the door to Bashundhara, and you still carry the kerosene, the remote depots, the strategic stock, and all of the losing months. 

You have already asked the government, in writing, for one of three remedies: refund the war losses, suspend the duty until the war ends, or let you sell at international prices. None of these has been granted. Only one option remains: the price itself. 

BPC, the institution built to hold prices down, now needs them up to survive. Guess who else wants that? Every time BPC pleads for a price adjustment to stay solvent, it is also pleading for Bashundhara's margin, automatically. The problem Bashundhara creates will produce a solution that benefits Bashundhara too, which is BPC lobbying to keep prices elevated for its own survival.

Add it all up, volume times margin, and Bashundhara's take comes to several thousand crore a year in a normal cycle, and toward 10 thousand crore taka a year at the top of the cycle. During bad times BPC's losses deepen; during good times, close to half the profits it usually makes go to Bashundhara.

This is like telling someone a commodity is priced X today and will be Y after a month and asking whether they would want to trade it. It's a simple arithmetic problem that decides the choice.

But that's not all. The devil's in the details.

Bashundhara has also asked for the right to market its imported oil through the state-owned marketing companies, Padma, Meghna and Jamuna Oil. It knows its own distribution is not yet strong enough to cover the country, so it wants to use the distribution rails that taxpayer money has built over decades. 

And those rails earn on payment timing. Dealers pay in advance, daily. The marketing companies sit on that cash and settle with BPC much later, and the interest they earn on the money in between is their fattest profit line. A private supplier is unlikely to extend that patience. It will want payment within days, while taking its own time to settle its import bills abroad. 

The float that today sits in state FDRs, funding banks and through them the government's own borrowing, would sit in Bashundhara's treasury instead. In effect, a working capital line for the conglomerate, built with public money.

So what is the long-run implication of all this?

BPC sells through every losing period, and Bashundhara shows up for the profitable ones. Year after year the state corporation posts losses while the private one posts profits, and after a decade a bleeding BPC will be the poster child of the inefficient state-owned enterprise, while its function quietly moves to Bashundhara, who it will seem are making healthy profits through "good management."

And to be clear, none of this is an argument about Bashundhara in particular. Run any conglomerate's name through the same machinery, the option without the obligation, the storage play, the yearly quota, and the outcome is identical. 

The objection is to the privilege itself. No private company should hold a one-way option written against the public's buffer, and if this one is granted, others will line up behind it asking for the same.

You hear about governments selling off white-elephant SOEs in various parts of the world. But this is a case where the government is planning not to sell the public cash cow, but to create a business that will slowly cannibalize it. 

This is the creation of Standard Oil for a private company under state patronage. Except Standard Oil at least had to build its empire. This one would begin with a charter.

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Taukir Aziz is a finance professional and a trustee of Panam Institute, a Dhaka-based think tank