Hamstrung with paltry annual earnings from a tiny fleet of vessels, Bangladesh Shipping Corporation (BSC) fears pains in repayment of loans taken for vessel buys unless interest rate is halved.
Recently the corporation requested the government to cut the interest on the loan it has taken to buy six ships from China, officials said.
Following its appeal, the Ministry of Shipping (MoS) recently forwarded such a letter of the corporation to the Ministry of Finance (MoF) for consideration.
According to the officials concerned the MoF signed a concessional-loan deal with the Exim Bank of China in October 2016 to buy three product oil tankers and three bulk carriers of 39,000-dead-weight tonnage each for the BSC.
The debt was 1.19 billion worth of Chinese Renminbi, equivalent to Tk 15 billion, for which the Exim Bank will charge 2.0-percent interest with repayment in 20 years having a grace period of five years.
However, the government will charge the corporation 6.0 per cent as interest on the loan. Once the grace period has been over, the BSC will have to pay Tk 2.053 billion every year as instalment of principal and interest combined.
The BSC says it will incur operating loss, negative cash flow will be created, and the corporation may be unable to repay the loan if the annual instalment remains such high due to high interest rate.
Getting caught in such a dilemma, the corporation requested the government to charge 2.5 per cent as interest on the loan instead of present rate of 6.0 per cent.
To underpin its plea, the BSC argues that the government charges 4.0-percent interest on foreign loans in case of Dhaka Electric Supply Company Limited, Dhaka Power Distribution Company Limited, North-West Power Generation Company Limited, Electricity Generation Company of Bangladesh Limited (EGCB) and Bangladesh Power Development Board.
In the case of Bangladesh Agricultural Development Corporation, Petrobangla and the Water Supply and Sewerage Authority, the interest is charged at 5.0 per cent.
“Since the project of the national-flag carrier is meant for public welfare, a subsidiary loan agreement at 2.5-percent interest rate can be signed,” the MoS letter reads.
It further says one of the six ships, namely ‘Banglar Samriddhi’, was hit by a missile on the night of March 02 last year in Ukraine thus its commercial activities remained suspended then. Later on, the vessel was abandoned and declared total loss, thus the corporation received insurance money from the insurer. Now the insurer owns the vessel.
The BSC has said just after receiving the six vessels, the Covid pandemic spread all over the world which caused tariff loss and, at the same time, operating cost increased. Thus the BSC incurred huge financial loss and, at the same time, did not receive any financial incentives from the government during the pandemic days.
During the fiscal year 2017-18 to 2021-22, the BSC had earned annual profit of Tk 738 million from ship operation and other activities. However, the corporation will have to pay Tk 2.053 billion per annum as principal and interest of the loan if 6.0-percent interest is charged.
The shipping corporation further informed that it earns Tk 800 million per year by lightering crude oils imported by Bangladesh Petroleum Corporation. From next August the lightering of BPC’s crude oil will be done through pipeline, thus the BSC will be deprived of the earnings.
It said steps are underway to collect some ships in line with government’s eighth five-year plan, sustainable development goals, Perspective Plan 2041, Bangladesh Delta Plan, and blue economy. Collection of the vessels will cost the corporation Tk 2.43 billion.
Moreover, the BSC will need Tk 15 billion from its own fund if a proposal to collect six LNG (liquefied natural gas) carriers is approved. So, the corporation needs to keep arrangement of a large amount of funds to meet the requirements.
Contacted, BSC managing director Commodore Ziaul Hoque told the FE he had heard that the MoF was taking steps to lower the interest rate but that is not up to expectation.
“We are ready to provide profit to the government to some extent but the interest rate should not be too high that this organisation can’t bear,” he said.
Mr Hoque said: “If we need to pay 6.0-percent interest, that will be a big amount, and we would not be able to remain a profitable concern anymore.”
None of the state-owned bodies is paying 6.0-percent interest in the case of foreign loan. “If we are allowed to pay up to 3.0-percent interest, that will be bearable to us,” he added.
syful-islam@outlook.com