$ 2.0b IDB loan for BPC to import petroleum products

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M Azizur Rahman The International Islamic Trade Finance Corporation (ITFC), the lending arm of Islamic Development Bank (IDB) Group, will provide US$ 2.0 billion as loan to Bangladesh Petroleum Corporation (BPC) to import petroleum products for the next year, a top government official said. This will largely enable the corporation to avert any fresh liquidity problem in the immediate future, he said. "ITFC has agreed to provide us $ 2.0 billion in line with our request to foot the country's mounting fuel import bills," BPC Chairman Md Abubakar Siddique told the FE on his return from Jeddah Wednesday. The Jeddah-based lender provided $ 1.45 billion in the Hijri year 1432, which ended on November 26, he said. For the current Hijri year, the BPC has sought $ 2.0 billion, up by 37.93 per cent from that of the previous year. IDB has also reduced the 'mark-up' rate to 5.0 per cent from the previous 5.3 per cent against its new loan, which will ease further the fiscal burden on the corporation. Officials said the augmented loan from ITFC of the IDB will help BPC import the increased quantity of petroleum products to meet the mounting demands especially to run new oil-based power plants. The corporation has projected that it will require around Tk 460 billion ($ 6.21 billion) in fiscal year (FY) 2011-2012 - a 53 per cent jump year on year - as it will need to import more oil products in order to meet the domestic demand. It expects to import around 6.50 million tonnes of oil products over the period in FY 2011-2012, up by 27.5 per cent year on year. The corporation purchases the oil products from the international market and sells them at lower prices in the domestic market, resulting in a large amount of losses on its oil trading. To ease the liquidity problem BPC has already got an opportunity to make use of deferred payment arrangement, worth $ 1.50 billion, for imports of oil from two major oil suppliers for one year. The BPC has signed deals with Malaysia's state-owned Petronas and the Philippine National Oil Company (PNOC) recently over the deferred payment arrangement for purchase of its refined oil products. The state-run BPC will be able to import petroleum products worth around $ 1.50 billion under the facility in one year, said the officials. The deals with Petco, the trading arm of Petronas, and PNOC concluded in Singapore over the deferred payment arrangement last week, although it was made effective from October 01, 2011, based on prior negotiations. The deal can be renewed or extended, if necessary. The state-run oil import and marketing body has already received several cargoes, carrying petroleum products from Petco and PNOC on deferred payment basis, BPC sources said. The corporation earlier finalised its first-ever deferred payment arrangement with Petco and PNOC and the interest rate under the related deals were set for first six months - from October, 2011 to March, 2012. Under this facility, the BPC will have six months' time to make payment, following the delivery of imported cargoes, but the interest, which is at around 5.05 per cent per annum, will be charged only after the first month. The interest rate for later six months is yet to be finalised. In an unprecedented move the BPC also arranged a syndicated loan worth $ 200 million from Standard Chartered, HSBC and Citibank NA, officials said. To reduce the losses the government earlier raised domestic petroleum prices twice in FY 2011-12 - once in September and then again in November. The government raised the prices of petroleum products within the range between 6.32 and 19.04 per cent on September 19, 2011. It raised domestic petroleum prices further by 5.95-10% with effect from November 11, 2011. The prices of diesel, kerosene, petrol and octane are now higher by Tk 10 per litre than those during the FY 2010-11. The price of furnace oil is costlier by Tk 13 per litre than its price in FY 2010-11. Despite the hikes, the BPC will face a loss of Tk 16.39 against sale of every litre of diesel, kerosene, and Tk 4.97 per litre against furnace oil, its officials said. The BPC has projected that it will require government funding against its loss of Tk 110 billion in the current fiscal year, almost double the amount (Tk 57 billion) of the previous fiscal.