BPC faces tough challenge for meeting fuel import bills

The government is set to face a tough challenge to foot fuel bills this year for importing an increased quantity of petroleum products.
The challenge looms as the state-owned Bangladesh Petroleum Corporation (BPC) lowered its annual borrowing limit by 45.45 per cent to US$ 1.2 billion from its main lender International Islamic Trade Finance Corporation (ITFC), a top official said.
The BPC borrowed $ 2.2 billion last year, which was around 44 per cent of the fuel import cost of $5.0 billion, he said.
The lending this year by the ITFC, a lending arm of the Islamic Development Bank Group, will be effective for the Hijri or Arabic calendar year 1435 that began on November 5 last.
The BPC, the country's fuel import and marketing monopoly, negotiated with the ITFC last week to get less loans in line with a 'condition' of the International Monetary Fund (IMF) tagged with the release of US$ 987 million under its Extended Credit Facility (ECF).
As per the IMF condition, the BPC's external loan must not exceed $ 775 million in June next.
The BPC would get the fund at what the ITFC calls a 'mark-up rate' of 4.50 per cent lower by 3.22 per cent from the previous year's mark-up rate of 4.65 per cent, said the BPC official.
Under Islamic financing, interest is forbidden.
Officials said the BPC might have to arrange fresh syndication loans from multinational commercial banks like Standard Chartered, HSBC and Citibank.
It might also have to go for the deferred payment mechanism with new oil suppliers apart from extending the current deferred payment mechanism, said the top BPC official.
The government would have to provide funds to the BPC consistently to foot the fuel import bills, he said.
Currently, the BPC has syndication loans worth $400 million from the HSBC and the Standard Chartered.
It has also deferred payment schemes involving $1.0 billion with Petco, the trading arm of Malaysia's state-owned Petronas, and the Philippine National Oil Company (PNOC).
The BPC imported around 5.2 million tonnes of crude and refined oil products during the last fiscal year 2012-13 at an estimated cost of around $5 billion.
During the current fiscal year the projection of imports-crude and refined oil combined-is 5.67 million tonnes.
The government made an allocation of $ 1.02 billion (Tk 79.50 billion) for the BPC in the current fiscal.
Besides, the BPC would have to adjust frequently the domestic petroleum prices to keep its losses within a certain 'limit,' he said.
The government has already made a commitment to the IMF to keep the difference between the domestic average fuel prices and the international rates within Tk 10 (12.82 US cents) per litre and adjust the prices as needed to maintain that target.
The country currently changes domestic fuel prices through a government executive order with no pricing basis in place.
The BPC purchases oil products from the international market and currently sells those at lower rates in the domestic market, resulting in significant losses.
In the latest bid to offset the losses faced by the BPC, the government raised domestic prices of diesel, kerosene, petrol and octane by almost 12 per cent in January, 2013.
Currently the BPC is incurring a loss of around Tk 10.23 per litre against gasoil trades and Tk 10.17 per litre against superior kerosene.
It does not incur any loss on account of trading in petrol and octane.
The BPC has term contracts with suppliers to import around 3.74 million tonnes of refined oil products in 2014.