Govt to take $2.10b from ITFC

A government bid begins to borrow $2.10 billion from the Jeddah-based International Islamic Trade Finance Corporation (ITFC) to foot hefty bills for import of petroleum and liquefied natural gas (LNG) to meet fuel shortfalls.
To this end, a loan agreement between the ITFC and the Ministry of Power, Energy and Mineral Resources (MPEMR) was inked Wednesday, MPEMR deputy chief information officer Mir Mohammad Asal Uddin told the FE.
Energy and Mineral Resources Division secretary Md Nurul Alam and ITFC chief operation officer Nazeem Noordali penned the deal from respective sides.
State minister for MPEMR Nasrul Hamid was the chief guest at the deal-signing ceremony.
"This is a milestone for the country," Mr Hamid told the event, adding: "It'll help reduce the fiscal crisis in the energy sector significantly."
Of the total ITFC loan, the state-run Bangladesh Petroleum Corporation (BPC) will borrow $1.60 billion to facilitate petroleum imports from global suppliers.
The remaining $500 million will be borrowed by the state-owned Oil, Gas and Mineral Corporation, nicknamed Petrobangla, to pay LNG-import bills.
Sources said the interest rate would be 'secured overnight financing rate' (SOFR)-plus 2.0 per cent, which currently totals around 7.31 per cent.
The SOFR currently hovers around 5.31 per cent.
Since 01 July 2023, the SOFR has replaced the London Interbank Offered Rate (LIBOR) as the new benchmark- interest rate for international lending.
The BPC has long borrowed from the ITFC, a member of the Islamic Development Bank (IsDB) Group, to foot oil- import bills.
During fiscal year 2022-23, it also borrowed around US$1.40 billion to ensure smooth fuel imports from the international market, according to market insiders.
This is, however, the first-ever borrowing by the Petrobangla from the ITFC.
The corporation has long been pressing the government to get US dollar amid its struggle to settle dues to LNG suppliers (long-term and spot suppliers) and international oil companies (IOCs).
Previously, it spent an estimated Tk 20 billion from the Gas Development Fund (GDF) for import payment.
The GDF was initially set up to provide funding support for hydrocarbon exploration in potential onshore fields and almost virgin turfs in the Bay of Bengal.
Officials say the petroleum oil and LNG suppliers and the IOCs have long been pressing both the BPC and the3 Petrobangla for clearing back payments, with forewarnings of supply cease.
As the repayment went worse, France's TotalEnergies and Gunvor Singapore notified the Petrobangla last July to clear outstanding payments for spot LNG cargoes or else forfeit monetary guarantees with the state bank.
Both LNG suppliers sought full clearance of pending invoices within three working days, otherwise they warned of adjusting dues from guarantees under the standby letters of credit, or SBLC, kept by Petrobangla with state-run Agrani Bank Ltd against LNG trading with the suppliers, according to sources.
Apart from spot suppliers, the Petrobangla has been struggling to pay long-term LNG suppliers, too.
The importer has not been able to pay regularly to the two existing long-term suppliers Qatargas and Oman Trading International (OTI), now OQ Trading, against LNG purchases, according to market insiders.
The Petrobangla owes around $500 million to the LNG suppliers to date.
It was also struggling to make regular payment to US oil-major Chevron for gas purchases since September 2022 and currently owes over $300 million to the firm.
Almost all the petroleum oil suppliers also warned of stopping supplies after being upset over delayed payments.
The BPC currently owes around $500 million to different refined oil suppliers, said sources.
Energy experts and rights groups have criticised ITFC's loan terms as "harsh", airing concerns that it would further worsen the state-run entities' already-fragile financial 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.
It will create extra pressure on the country's dwindling foreign-currency 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 says, noting that any foreign loan above 4.0-percent interest is usually considered high.

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