Scrutiny follows approval of IITFC proposal on LCs

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Syful Islam
The government has started examining the pros and cons of an International Islamic Trade Finance Corporation (IITFC) proposal after its approval.
The IITFC, an associate of the Jeddah-based Islamic Development Bank (IDB), proposed to open the letters of credit (LCs) through it instead of local banks when the government had sought an additional $500 million for fuel oil import.
The Prime Minister, who is also in-charge of the Ministry of Power, Energy and Mineral Resources, has approved the proposal.
However, the ministry of commerce (MoC) Sunday convened an inter-ministerial meeting to examine in details the issue of allowing the IITFC for opening LCs for oil imports bypassing the local banks that have been doing the job for decades.
In the meeting, a general manager of the BB opined that the central bank needed more time to examine whether the IITFC could be allowed for the task.
The IITFC has recently granted Bangladesh US$ 2.0 billion loan for fuel oil import this fiscal. But due to price hike of fuel oil the government sought another $ 500 million from the IITFC to meet the additional cost.
For the additional $ 500 million the IITFC had set a condition that the LCs be opened through it or the Islami Bank Bangladesh Ltd (IBBL).
Officials said if the ITFC opened LCs, the Bangladesh Petroleum Corporation (BPC) will have to send the commission against LCs to the Jeddah-based organization, depriving the local banks of a substantial sum that they have been earning as commission since independence.
The IITFC wanted the government to sign a deal with it to this effect, arguing that if it issued the LCs for oil import from Saudi Arabia by the BPC, it could directly make payment, avoiding any pressure on the Bangladesh's foreign exchange reserve.
It said the cost of fuel import would decline along with a cut in shipment time if the LCs were opened through the IITFC instead of local banks.
Energy ministry officials dealing with the issue have found the IITFC proposal "inconsistent" as there was no clear indication as to how the import cost would be lower with a reduced shipping period.
"They have not explained the benefits clearly. There is a fear that since the BPC has become dependent on the IITFC for fuel import loan, it is trying to cash in on our helplessness," a senior energy division official said.
Officials, however, could not give the actual size of the commission earned by local banks from LC opening for oil import. But bankers said the amount was 'pretty handsome'. The BPC spent Tk 284 billion in financial year (FY) 2010-11 on oil import.
The BPC's fuel import is set to soar by more than 50 per cent this year, due to the commissioning of a large number of fuel oil-based power plants and increased use of oil in farms and factories.
In the recent months some local banks have declined to open LCs for the BPC as the lone fuel importer owes a substantial amount of money to the banks.