Bangladesh to import diesel from India: A win-win situation amidst economic turmoil?

Kamal Uddin Mazumder

(kamalmazumderju@gmail.com)

Bangladesh and India had been sharing friendly and warm relations since 1971. Both of the countries have been kith and kin through crisis moments. Bangladesh has witnessed India's support from the liberation war to the Covid-19 pandemic. As now the world is facing the repercussions of the pandemic and the Russia-Ukraine war through the economic crisis and the energy crisis, India is still with Bangladesh through a cooperative framework. The government of Bangladesh had decided to cut down its fuel consumption to keep up with the global energy crisis. It was necessary to import fuel at the cheapest possible rate to mitigate the crisis. Some talks had been initiated with countries like Saudi Arabia, Malaysia, and Brunei but India came forward first.

The geographical proximity and the longest shared border had ushered multidimensional ways of cooperation and collaboration in many areas. The import of diesel from India through the pipeline is one of the prime examples of maximizing the geographical proximity with Bangladesh's perpetual neighbour country.

Amidst the crisis, the beacon of hope is, diesel will arrive in Bangladesh by pipeline from India at the end of February or the beginning of March next year. Once the diesel arrives it will bring a win-win situation for both Bangladesh and India. Whereas both of the countries will get a mutual benefit economically and Bangladesh will get to mitigate its energy crisis, India will generate revenue by exporting diesel to Bangladesh. India has already expressed its positive attitude towards increasing cooperation with Bangladesh. Not only that, Bangladesh-India have signed several agreements and memoranda of understanding to increase bilateral trade and investment.

Bangladesh-India Diesel Trade

India-Bangladesh diesel trade had been ongoing since 2017 carried by train. The cost of transportation was a huge sum of amount for Bangladesh Petroleum Company (BPC). About 2,200 tonnes of diesel is sent from Numaligarh Refinery Limited (NRL) through West Bengal Railway every month.

As the demand for diesel is highest in 16 districts of the northern region during Aman and Boro season, the government decided to import this fuel through the pipeline. If the project is implemented, diesel can reach the consumer level in 16 districts of the Rangpur and Rajshahi divisions in a short time. As a result, it will be able to provide it to the farmers at a low cost in a short period besides saving a huge amount of money. This gesture from India will not only strengthen Bangladesh's economic ties with India but also uphold the ties of friendship during the energy crisis as well as the dollar crisis.

Apart from uninterrupted, cheaper, and quicker energy supply security, the cross-border pipeline is expected to help BPC reduce the system loss that it incurs in the form of pilferage. Due to the introduction of pipelines, the supply of fuel in the country will increase and the cost of transportation of fuel will come down.

India-Bangladesh Friendship Pipeline Agreement

An agreement was signed between the two countries in November, 2018 to implement the project. The work started in March, 2020. The duration of the project was till June, 2022. But due to the Covid-19 pandemic, the project has been extended till December this year as the pace of work has slowed down a bit. The construction of the Bangladesh-India Friendship pipeline is almost at the final stage. The 131.57-km-long pipeline project connects Siliguri, West Bengal with Parbatipur and Dinajpur. Of the total length of the pipeline, 126.50 km is inside Bangladesh while the remaining 5.07 km is in India. Of the construction cost amounting to Bangladeshi Tk (taka) 520 crore, the Indian government is providing Tk 303 crore and the BPC is providing the remaining Tk 217 crore. About 1 million metric tonnes of diesel can be imported from India annually through the pipeline. However, in the initial phase, 2.5 lakh tonnes will be imported. According to the 15-year agreement, the import volume will increase to 4 to 5 metric tonnes per year.

A Beacon of Hope?

Through this pipeline, an alternative source of diesel import is being created for Bangladesh. According to Bangladesh Petroleum Corporation, Bangladesh imports 6.5 million tonnes of fuel oil annually. Of that, 4 million tons of diesel is imported annually. Through this pipeline, almost fifty percent of imported fuel will come to this country by reducing the significant amount of transportation costs.

Moreover, according to BPC, it has to pay an average premium of $10 per barrel (159 litres) for bringing fuel oil (including freight). It can be eight dollars if imported from India. A reduction of two dollars per barrel can save about 1.5 million dollars per 100,000 tonnes. People of 16 districts of the northern region will be able to enjoy this benefit in addition to taking less time in fuel supply.

Therefore, foreign exchange will also be saved if diesel is imported from India. Now if it is possible to import in rupees instead of dollars then our dollar crisis will reduce to some extent. If India gives Bangladesh some discount in the future, it can be more profitable.

Currently, India has been importing Russian oil defying the United States sanctions while Bangladesh has a long-term contract with India to import refined oil from its refinery at Numaligarh in Assam. If there is a bilateral arrangement between the two nations, importing Russian oil at a much cheaper rate is very much possible. As Russia has been facing huge economic sanctions from the US and its European allies following its war with Ukraine, if Bangladesh imports Russian oil from India at the same rate, then it can avoid sanction from the USA and other western allies.

On the other hand, exporter India can earn foreign exchange inflow from export revenue, which can be used for investment or other economic purposes. Even if India exports refined oil to Bangladesh at a cheaper rate, that will bring net economic gains for the country as a whole.

Future Prospects

Enhanced energy cooperation through bilateral and multilateral arrangements can address the challenges posed by high fuel prices in the wake of Russia-Ukraine war. And India-Bangladesh Friendship Pipeline is a striking example of bilateral energy cooperation. Once diesel starts to arrive in Bangladesh, it will usher a new dimension to the energy cooperation between India and Bangladesh.