BPC hunts for dollar to import fuel oil

The Bangladesh Petroleum Corporation (BPC), the lone state-owned fuel oil importer, has asked for the central bank's help in opening letters of credit (LCs) for fuel oil imports, as banks have begun expressing their inability to do so citing dollar shortage.

In a letter on 17 May  to the finance ministry and the Energy & Mineral Resource Division, the BPC urged the Bangladesh Bank to make dollar available to state-owned and private banks to open LCs for fuel oil import and issue the necessary directives accordingly.

The BPC says it has to open 16 to 17 LCs worth around $560-696million each month to import refined and crude oil.

But with a hike in the exchange rates, banks have been reluctant to open LCs for government's purchases.

In a pre-budget discussion of the finance minister with the economists in May, Bangladesh Bank Governor Fazle Kabir had said, "To control inflation, we are releasing dollars from reserves and opening LCs for food, fuel and fertilizer imports. These LCs are being opened at the bank rate, which was Tk87.50 per dollar on Tuesday."

The Tk87.50 rate, however, is one that banks are unable to get at the moment.

According to the latest information, the kerb market rate of the dollar was Tk99 on Sunday – up from Tk98 of the past week's close.

However, while the greenback exchange rate for interbank transactions remained static at Tk87.50, banks have been scrambling to procure dollars, paying more than the interbank rate.
 
Because of this, banks claim they are losing money on LCs.

The BPC used to pay the import bill through the state-owned Sonali, Agrani, and Janata Banks, and some private banks, including One Bank and Islami Bank.

In November last year, Sonali Bank told BPC that it could no longer open the government LCs.

On 12 April, following an inter-ministerial meeting, the BPC was told to pay the fuel oil bill by purchasing dollars at the market rate or the interbank rate. 
 
On April 26 of the same month, the BPC informed the decision to the state-owned and private banks. 

BPC's letter mentioned on 12 May, 2022, Agrani Bank Limited, a state-owned bank, also informed it that it was almost impossible to pay the fuel oil price after buying dollars from the foreign exchange market due to the prevailing dollar crisis.
 
Agrani Bank further said it was incurring huge exchange losses due to a higher remittance rate in the interbank currency market than the business corresponding (BC) selling rate.
 
"Due to such a situation, fuel import in the future may be at risk," the BPC wrote in its letter.
 
If the LCs are not opened at the right time, a fuel crisis may surface in the country, said the BPC in the letter. 
 
Against this backdrop, BPC's Director (Operation and Planning) Khalid Ahmed told The Business Standard that to keep fuel supply uninterrupted, they were ready to pay the additional costs. 
 
"We have informed Agrani Bank's position to the Bangladesh Bank through the energy division and finance ministry, and asked it to help us in opening LC to import fuel," he said.

Executive Director and spokesperson of the Bangladesh Bank Md Sirajul Islam told TBS that he was not informed of the matter and so it was not appropriate for him to comment on it.

He, however, said the central bank had released about $5 billion in the market, most of which was given to state-owned banks to open large government LCs.

At present, the country imports around 91% to 92% of its fuel demand while the rest is sourced from local gas fields in the form of condensate, a bio-product of gas.

The BPC has a storage of one month, equivalent to six lakh tonnes of fuel, at major land and riverine depots across the country.
 
Banks need dollar supply from BB
 
Although the BPC has agreed to pay a higher rate to offset any losses made by banks due to opening the LC, the problem is yet to see a solution as the financial institutions still need dollars from the central bank.
 
Mohammad Shams-Ul Islam, managing director and chief executive officer of Agrani Bank, said, "We know that Bangladesh Bank will give us dollars for import of food, fuel and fertilizers. Bangladesh Bank has also endorsed that if the bank cannot cover the whole amount using its own dollars and those from Bangladesh Bank, then it will buy dollars from the market.

"But the rate is much higher in the market. At the bank rate, I can't buy dollars from the market. So right now, I cannot buy nor can I get dollars from Bangladesh Bank. That's why we are a little wary. But we are working in the interest of the country. No matter how many problems we face, we will support them [BPC]."

Highlighting the problem, Shams-ul-Islam said that they tried to meet the need through collecting export remittances. But without the central bank's support, meeting the fuel import bill would not be possible, he said.

"If I ask for $20 million and you give me $2 million, then it won't be sustainable after a few times. Many times, the dollar isn't available on demand and hence the LC settlement is delayed."

Ataur Rahman Prodhan, managing director and CEO of Sonali Bank, also the chairman of Bangladesh Foreign Exchange Dealers Association (BAFEDA), echoed the sentiment.
 
"We say that we will open the LCs, if we get the required dollars at the right rate or if Bangladesh Bank provides the dollars. This is a government LC. We don't want to have a shortage of fuel oil," he said.

Prodhan mentioned that Sonali Bank had to buy dollars from the market, which was more expensive amid low supply.

He also said that the higher rate of purchase would push up the price of BPC's oil, which was another concern.

"That is why we are asking for Bangladesh Bank's help. For the three months, we want dollars from Bangladesh Bank for the payment of the government LCs," he said.  

"As the chairman of BAFEDA, I sent a letter to the Bangladesh Bank last Thursday stating the amount of dollars that the state-owned banks will need….this has been requested from the Bangladesh Bank. Let's see what happens."