BPC\'s proposal puts govt in a dilemma

The government is in a dilemma over the proposal put forward by the Bangladesh Petroleum Corporation (BPC) to convert its Tk 263 billion official loan into state subsidy.
A recent meeting of the finance ministry has failed to reach any decision on the proposal, officials concerned said, adding that the meeting discussed the issue as to whether the BPC's outstanding debt would be considered subsidy or loan.
"We have discussed both the options, but we couldn't make any decision on the proposal," a senior finance ministry official told the FE.
He, however, said if the BPC's proposal is accepted, it will take more time to complete necessary formalities, including loan write-up from the government exchequer.
Earlier, financial support was provided to the BPC due to mismatch between domestic and overseas prices of fuel oils. Such kind of financial support should not be treated as loan, another senior finance ministry official said.
The BPC in an official letter, sent to the Ministry of Power, Energy and Mineral Resources (MoPEMR) early this month, made the proposal.
Analysts who are critical of the government's stance on the question of oil-price readjustment likened the BPC bid to a policy of making the most of both worlds as it came at a time when a public plea for reducing the petroleum-fuel prices matching with the global rates went unheard.
The energy ministry has already forwarded the letter to the Ministry of Finance to take necessary action.
A total of Tk 435.77 billion - over Tk 263.49 billion as loan and over Tk 172.28 billion as bond - had been given to the state-owned corporation. The handouts are shown in the BPC data.
The BPC wrote to the MoPEMR for passing on the proposal to the MoF for the conversion of its all state loans into subsidy instead of transformation of credits into equity, sources concerned said.  
Earlier, the state entity had made the proposal to the MoF to convert the loans to government equity. But it has recently changed its previous proposal, evidently to get out of debt overhang.
The question of cutbacks on domestic fuel prices has so far been skirted by showing the BPC's liability for repayment of the money given by the government over time to enable it to sell oils at subsidised rates for public consumption. Other countries are reported to have readjusted their domestic fuel prices.
Besides, the government has provided over Tk 263.49 billion in credit to the state entity between fiscal year 2007-08 and 2014-15. Interest thereof ranges from 3.0 per cent to 5.0 per cent, according to BPC data.  
"We have sent a proposal to the MoF through the MoPEMR for conversion of BPC loans into subsidy," a senior BPC official told the FE on Sunday.   
"A letter has been received from MoPEMR about the conversion of BPC loans into subsidy. But we didn't start our work on the issue," an official concerned said.
The corporation has been making profits since the last fiscal year because of low petroleum prices on the international market and retaining its high prices on the domestic market, he added.
It is earning a profit of Tk 39 from per-litre octane, Tk 35 from petrol, Tk 27 from diesel and kerosene and Tk 26 from furnace oil, BPC chairman A M Badrudduja said.
The price of Brent crude, the global benchmark in oil price,  which had climbed up to US$ 120 per barrel last year, hurtled down to a rock-bottom $ 30 recently.
When contacted, a top BPC official recently said: "The previous fiscal support by the government should not be treated as loan as we sold different fuel products in the country at lower prices for not adjusting prices in line with their prices in the international market."
The profit-making BPC will be able to settle its debts to banks and financial institutions from its earnings on petroleum products, he said.
The BPC imported around 5.80 million tonnes of petroleum products, crude and refined oil combined in FY 2015, up 9.43 per cent from the previous year's 5.30 million tonnes.
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