MoF allocates Tk 12.23b to BPC as subsidy now

Nazmul Ahsan The Ministry of Finance (MoF) has sanctioned Tk 12.23 billion in favour of Bangladesh Petroleum Corporation (BPC) as subsidy payments to it for selling petroleum products in the domestic market at prices lower than its procurement costs. The allocation has been made, in consideration of the losses being incurred by the BPC in the current fiscal year (FY), an office order of the ministry said. However, the total demand for energy subsidy in the FY, 2012-2013 could be as much as Tk 100 billion, a senior BPC official said. The MoF, in its official clarification, said though the amount has been sanctioned showing it as energy subsidy, it will be treated as a low-cost loan at 5.0 per cent rate of interest. An agreement between the MoF and the BPC will be signed soon to give effect to it, the order added. The proposal for the loan, having the provision for a 20-year repayment period, was cleared last week. "The loan worth Tk 12.23 billion is being provided to the cash-starved BPC to meet its financial losses, involving a substantial amount of money, because of the gross mismatch between its costs of import and domestic sale prices of fuel oils during the first eight months of the current fiscal," a top MoF said. The allocation of fund for the purpose will be met, out of the government's revenue budget, he said. A senior BPC official said the corporation incurs now loss to the tune of Tk 12 for selling a litre of diesel and furnace oil in the domestic market. According to the BPC, it will incur an amount of loss, aggregating at Tk 125 billion in the current fiscal, if the prices of diesel and furnace oil are not increased further. The MoF officials said the government, with a holistic approach, would like to limit new subsidy-related loans from state-owned commercial banks (SoBs) to BPC to a zero level, while the overall subsidy bill would be lowered further, by introducing an automatic fuel price adjustment mechanism. The MoF , a couple of months ago, issued special treasury bonds worth Tk 57.32 billion to three state-owned commercial banks (SoBs) -- Sonali, Janata and Agrani -- to clear off the outstanding amount of loans of the BPCon account of import of oil. "In tandem with actions to enable the BPC to clear off its outstanding amount of loans to the SoBs through issuance of special bonds, we are also committed to introducing soon an automatic fuel price adjustment mechanism so that energy-related subsidy burden is lessened or does no longer exist," an MoF official said.