BPC to import $1.5b oil on deferred payment basis

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M Azizur Rahman The government has got an opportunity to make use of deferred payment arrangement, worth US$ 1.50 billion, for imports of oil from two major oil suppliers. This will largely enable it to help avert any fresh liquidity problem of the cash-strapped Bangladesh Petroleum Corporation (BPC) in the immediate future, a top official said Monday. 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 purchases of its refined oil product for one year, he said. The state-run BPC will be able to import petroleum products worth around US$ 1.50 billion under the facility in one year, said the official. The deals with Petco and PNOC were concluded in Singapore over the deferred payment arrangement last week, although it was made effective since October 01, 2011, based on prior negotiations. The deal can be renewed or extended, if necessary. The state-run oil import and marketing monopoly has already received several cargoes, carrying petroleum products from Petco and PNOC on deferred payment basis, the BPC sources said. The corporation earlier finalised its first-ever deferred payment arrangement with Petco, the trading arm of Petronas, 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 cargo, but interest will be charged only after the first month, at around 5.05 per cent per annum. The interest rate for later six months is yet to be finalised. The BPC has estimated that its total imports of petroleum products from Petco and PNOC will be around US$ 775 million -- $550 million from Petco and $225 million from PNOC during first six months of the contract until March 2012. The imports by the BPC from Petco and PNOC for the period until March 2012 will include diesel, jet fuel, kerosene, furnace oil and octane, said the BPC official. The corporation has already completed negotiation to import around 660,000 tonnes of diesel, 160,000 tonnes of jet fuel and 120,000 tonnes of kerosene in 2012. From PNOC, it will import 300,000 tonnes of diesel and 64,000 tonnes of octane during 2012. Both Petronas and PNOC had earlier offered to let the BPC make deferred payments with interest charges for its oil purchases as the state-run Bangladeshi oil importer was struggling to foot their bills, a source close to Petronas and PNOC said earlier. Officials said the BPC entered into deferred payment deal for the first time as it was struggling to foot the surging oil import bills due to mounting imports of oil products. The corporation has projected that it will require around Taka 460 billion ($6.21 billion) in fiscal 2011-2012 (July 2011 to June 2012) -- a 53 per cent jump year on year -- as it will need to import more oil products in order to meet domestic demand. It expects to import around 6.50 million tonnes of oil products over the period in fiscal 2011-2012, up 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 reduce the losses the government raised domestic petroleum prices twice in current FY 2011-12 - one 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 each than those during the previous 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 still 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 of the previous fiscal at Tk 57 billion. The corporation usually borrows from various agencies and banks, with one major source being the International Islamic Trade Finance Corporation, the lending arm of Islamic Development Bank (IDB) group. The ITFC provided $1.45 billion as loans to the BPC for the just-concluded Hijri calendar year that ended in the last week of November 2011. For the current Hijri year, the BPC has sought $2.0 billion, up by 37.93 per cent from that of the previous year. The corporation currently has term deals to import oil from KPC, Petco, PNOC, Emirates National Oil Company, Egypt's Middle East Oil Refinery, the Maldives National Oil Company, PetroChina, Indonesia's Bumi Siak Pusako and Vietnam's Petrolimex.