IDB seeks increased interest on loan for fuel oil import

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M Azizur Rahman
Jeddah-based Islamic Development Bank (IDB) has sought an increase of premium by 3.25 per cent for providing Bangladesh Petroleum Corporation (BPC) around US$ 1.0 billion to import fuel from the international market, officials said Saturday.
The Islamic Trade Finance Corporation (ITFC), a newly established window of the IDB to deal with trade financing, offered its new rate of LIBOR plus 5.0 per cent instead of the current LIBOR plus 1.75 per cent when a Bangladeshi delegation visited the IDB headquarter last week.
"The ITFC has offered us the LIBOR (London Interbank Offered Rates) plus 5.0 per cent to provide the BPC $800 million for the next year," energy secretary Mohammad Mohsin who led the three-member Bangladesh delegation told the FE.
With the addition of IDB's new premium, the rate would rise to around 7.0 per cent as the LIBOR rate is now hovering around 2.0 per cent.
"We did not accept the new mark-up rate as it was too high compared to the previous rates," the energy secretary said.
Bangladesh sought the rate fixed at 5.5 per cent shifting from its LIBOR-based rate in line with a previous IDB proposal, Mr Mohsin said.
The IDB in October 2008 had proposed to set a fixed mark-up rate of 5.5 per cent shifting from its LIBOR-based rate when the LIBOR rate was on the decline.
The energy ministry was, however, indifferent to the IDB proposal that had prompted the multilateral donor agency backtrack from its proposal.
During its tour to Jeddah the Bangladeshi delegation also held meeting with the IDB's core officials and with the top executives of the Islamic Corporation of Investment and Export Credits (ICIEC), another IDB's arm to provide guarantee against international trade.
"We sought $200 million from the IDB at lower mark-up rate to facilitate the BPC import petroleum products from the international market," the energy secretary informed this correspondent.
The IDB normally provide funds at lower rates, which would be far below the ITFC offered mark-up rate, Mr Mohsin said.
"Altogether from both the ITFC and the IDB we preferred obtaining $1.5 billion," he said.
Before establishment of the ITFC, the IDB was the main credit provider for the country to import fuel.
During the meeting with the ICIEC the two sides discussed the guarantee issue with the letters of credit (L/C) opening banks especially of the state-owned commercial banks (SCBs).
The ICIEC has agreed in principle to provide guarantee to local banks to facilitate fuel import against payment of commission.
"We have discussed with the ICIEC about the recent stringent conditions of the Kuwait Petroleum Corporation (KPC)," said the energy secretary.
The KPC, the major fuel supplier for the country, is now favouring L/C opening by foreign banks though it used to allow L/Cs of local banks before.
It refused at least eight shipments of fuel from April 2008 to December 2008, due to what it said improper L/C.
The decision over the mark-up rate, the amount of credit and commission rate of the ICEIC would be settled by January next, said the BPC chairman Anwarul Karim, who accompanied the energy secretary during the tour."
An IDB delegation having representations from the ITFC and the ICIEC is due to visit the country next month, he added.