Government mulls exploring alternative sources of loans to import fuel

The government is considering exploring alternative sources of loans with interest rates lower than what its current and lone lender charges for importing fuel oil.

Bangladesh has been taking loans from the Saudi Arabia-based International Islamic Trade Finance Corporation (ITFC) for a long time to import fuel.

The country has signed a $1,000 million loan deal with the ITFC to import fuel this year. The government will initially take $800 million, with the remaining $200 million to be taken if necessary.

In 2020, the government will borrow $800 million from the ITFC.

The Islamic Trade Finance Corporation currently charges 4.5 percent interest for loans it provides for a six-month tenure. However, from next year the organisation will lower the interest to 4.05 percent.

Officials of the Economic Relations Division have stated that more loans will be taken at a relatively low interest rate from alternative sources, if needed.

"The government has been taking loans from the same source for several years to import fuel. The government thinks depending on a single source is risky. So, it is looking for alternative sources of loans to secure the future," said Monwar Ahmed, secretary of the Economic Relations Division.

Meanwhile, the Bangladesh Petroleum Corporation has placed a requirement for $1,200 million to supply fuel across the country in 2020.

Officials from the corporation visited Saudi Arabia on June 24-25 this year to finalise the terms and conditions of the ITFC loan.

Sources at the Economic Relations Division said Finance Minister AHM Mustafa Kamal has agreed to take $800 million in loans from the ITFC for the Petroleum Corporation.

Currently, Bangladesh has an annual demand for 60 lakh tonnes of fuel. Eastern Refinery Ltd, the only oil refinery in the country, produces 15 lakh tonnes of oil a year. The Bangladesh Petroleum Corporation imports the remaining 45 lakh tonnes, which costs an extra Tk6 per litre.

A project that had been undertaken to increase Eastern Refinery's capacity to refine 30 lakh tonnes is at present in a limbo due to a lack of funds availability. Officials point to the fact that many development projects like this one have come up against impediments as a result of continuous losses and huge loans owed by the Petroleum Corporation.

The BPC requires $2-3 billion annually to import petroleum oil.

The state oil monopoly has to seek loans from foreign banks and lending agencies when it fails to get enough foreign currency loans from Bangladesh Bank. In past years, it also took loans from Standard Chartered Bank, HSBC and Citibank NA.

Interest rates are calculated on the basis of LIBOR (London Interbank Offered Rate) and rates fluctuate with changes in global financial markets. In 2008, the BPC borrowed from foreign banks at LIBOR plus 1.84 percent, putting the total rate at 3.43 percent.

It was 3.80 percent in 2017. The ITFC will charge 0.70 percent higher this time, which BPC officials attributed to the rise in LIBOR.

The BPC imported 59 lakh tones of diesel, jet fuel and octane in the 2018-19 fiscal year. It has a target of importing 65 lakh tonnes this year.