Most of the petroleum-oil suppliers to Bangladesh have become upset again over payment arrears and requested clearing the dues immediately, a senior official at the state-run Bangladesh Petroleum Corporation (BPC) told the FE Sunday.
"Several suppliers, including Vitol Asia, have warned of stopping oil supply unless the dues are cleared immediately," said the official.
The BPC currently owes around $250 million to various refined-oil suppliers as overdue payments, market-insiders said.
Before this past July, the BPC had faced similar financial hardship and could pay only around one-third to half of the total payment arrears subsequently to some of the suppliers as the deadlines had elapsed, they added.
According to the insiders, before July, the petroleum corporation had failed to pay a single penny to some other suppliers. The outstanding overdue payments to the oil exporters rose to around $350 million.
The petroleum corporation, however, was able to overcome the payment crunch in July when it started borrowing from the Jeddah-based International Islamic Trade Finance Corporation (ITFC) to cover mounting oil-import bills, according to sources.
The BPC was then able to clear a major chunk of the arrears with the ITFC loan, BPC sources said. "But the payment situation has now worsened again, as the central bank is not releasing US dollars to clear outstanding payments."
Sources said the BPC borrowed $1.40 billion from the ITFC, a member of the Islamic Development Bank (IsDB) Group, in FY24 to ensure smooth fuel import from the international market.
The interest rate would be the secured overnight financing rate (SOFR) plus 2.0 per cent, currently totalling 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, Bangladesh has borrowed nearly $100 million each month to cover oil bills, which must be repaid within six months with interest at SOFR-plus 2.0 per cent.
The BPC will start repaying the ITFC from January 2024, after receiving around $600 million in loans.
However, energy experts and rights groups have criticised the ITFC lending terms as "harsh", noting with concern that it would further worsen BPC's already-fragile fiscal health.
"Clearing overdue payments with high-interest loans cannot be a solution," says Prof M Shamsul Alam, energy adviser of the Consumers Association of Bangladesh.
He told the FE that instead of reducing superfluous costs by addressing "pilferage and anomalies" in the petroleum-marketing system, the BPC has been increasing costs. If such a situation continues, the country will soon "face bankruptcy".
It will put further pressure on the country's dwindling foreign-exchange reserves, energy-expert Prof Ijaz Hossain, who teaches at the Bangladesh University of Engineering and Technology (BUET), told the FE Sunday.
"The interest rate is very high and harsh," he said, noting that any foreign loan above 4.0-percent interest is usually considered high.
BPC officials have said they have never encountered such a situation with payment delays in the past, adding that payments to oil suppliers were always cleared within the designated payment cutoff time.
Acknowledging the challenges facing state energy firms in Bangladesh, including Petrobangla and Bangladesh Power Development Board (BPDB), the BPC official admitted that they are 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, the BPC will import 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 country's 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 dropped to around $21 billion last week from a record $48.6 billion in August 2021.
azizjst@yahoo.com