Petroleum-fuel imports face risk for payment default to international suppliers to Bangladesh who appear averse over unpaid bills of around US$475 million, evidently amid dollar dearth.
State-run Bangladesh Petroleum Corporation (BPC) is currently delaying the payment of dues amid persistent dollar dearth and higher oil prices on the international market.
Despite securing around US$1.40 billion as loan from the Jeddah-based International Islamic Trade Finance Corporation (ITFC) to cover mounting oil-import bills, the state corporation is now struggling to pay regularly against oil-import bills, sources have said.
The petroleum importer currently owes around $475 million to various refined-oil suppliers in the highest-ever backlog, says a senior BPC official.
In June, the defaulted payments amounted to around $350 million. In mid-September, the amount came down to around $250 million as BPC could clear a significant amount of outstanding payments with the help of the ITFC loan that started flowing in from July, said the official.
"But, after September, the dollar crisis coupled with higher international oil prices since the outbreak of the war between Israel and Hamas in Palestine pushed BPC on back-foot again," he says about the financial problem.
Of the current dues, BPC now owes the highest amount worth around $ 200 million to Vitol Asia Pte Ltd, followed by $ 130 million to Unipec Singapore Pte Ltd, around $70 million to Indonesia's PT Bumi Siak Pusako, $30 million to Malaysia's Petco Trading Labuan Company, and $25 million to Emirates National Oil Company.
The corporation recently wrote to Energy and Mineral Resources Division (EMRD) under the Ministry of Power, Energy and Mineral Resources (MPEMR) for help in getting out of the financial hardship.
Sources say like in pre-June situation, several oil suppliers have warned of stopping oil supply unless the dues are cleared immediately.
BPC officials said they never encountered such a situation with payment delays in the past, adding that payments to oil suppliers were always cleared within the designated cutoff time.
Acknowledging the challenges facing state energy firms in Bangladesh, including Petrobangla and Bangladesh Power Development Board (BPDB), the BPC official said they were currently struggling to pay dues to foreign suppliers in US dollar.
The country's fast-depleting foreign-exchange reserves and the record-low value of the taka against the dollar have adversely affected these state companies, resulting in a buildup of arrears, added the official.
For this calendar year 2023, BPC is importing around 7.69 million tonnes of refined petroleum products, 18.3-percent higher than 6.5 million tonnes in 2022.
The breakdowns of the imports are around 5.31 million tonnes of 0.005-percent sulfur gasoil (diesel), 700,000 tonnes of Jet A-1 fuel, 600,800 tonnes of 95 RON gasoline (octane), 900,000 tonnes of high-sulfur fuel oil with 3.5-percent sulfur and 180,000 tonnes of 0.50-percent sulfur marine fuel.
Besides, the private sector is expected to import around 3.50 million tonnes of furnace oil, according to sources.
The BPC maintains government-to-government arrangements with nine listed suppliers of refined oil products, including Kuwait Petroleum Corp, Malaysia's Petco Trading Labuan Company, Dubai's Emirates National Oil Company, China's PetroChina, Indonesia's PT Bumi Siak Pusako, China's Unipec, Thailand's PTT International Trading and India's Numaligarh Refinery Ltd (NRL) and Indian Oil Corporation.
Around half of BPC's total refined oil is sourced through an international tendering system, while the remaining half is acquired through government-to-government negotiations with state-run oil suppliers worldwide.
The corporation usually floats tenders twice a year to import refined oils, with one tender for January to June and another for July to December, allowing them to fix premium rates. Negotiations with selected suppliers are conducted twice to determine petroleum prices.
The country has been facing an acute dollar crisis since the beginning of the Russia-Ukraine war in February 2022. The country's foreign-currency reserves recently dropped to around $20 billion from a record $48.6 billion in August 2021.
Officials have said the BPC borrowed $1.40 billion from the ITFC, a member of the Islamic Development Bank (IsDB) Group, for fiscal year 2023-2024 to ensure smooth fuel import from the international market.
The interest rate is the secured overnight financing rate (SOFR) plus 2.0 per cent, currently totals around 7.06 per cent as the SOFR rate hovers around 5.06 per cent. From July 1, the SOFR has replaced the London Interbank Offered Rate (LIBOR) as the new benchmark-interest rate for international lending.
According to the BPC official, the ITFC loan is being disbursed each month to cover oil bills, and the debt is payable within six months with interest at SOFR-plus 2.0 per cent.
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