Direct oil purchase redeems BD from costly borrowing

Dhaka,  Sat,  23 September 2017
Published : 04 Aug 2017, 22:45:08 | Updated : 05 Aug 2017, 12:35:12

Direct oil purchase redeems BD from costly borrowing

Only $250m out of $700m ITFC credit taken in FY'17
FHM Humayan Kabir
Bangladesh's dependence on high-rated International Trade Finance Corporation (ITFC) credits for oil import is decreasing for opting for direct purchase from other markets, officials said.

Although the ITFC set aside US$700 million in loan in the last financial year (FY), 2016-17, Bangladesh government used only $250 million of the credit.

 ITFC, the trade-financing arm of the Islamic Development Bank (IDB), charges higher interest rates with shorter repayment tenures on loans for the purchase of crude and refined oils, the officials said Friday.

The ITFC recently requested the state-owned Bangladesh Petroleum Corporation (BPC) to complete negotiations for necessary loans for the current FY2018 to purchase petroleum.

Meanwhile, the BPC has selected Unipec, a trading arm of the Chinese state oil-major Sinopec, and Vitol, a Singapore-based supplier, for supplying nearly 1.06 million tonnes of oils for the second half (July-December) of the current calendar year (2017).

An Energy and Mineral Resources Division (EMRD) official said since ITFC loan is costly and the premiums for the oil purchase under this arrangement are also higher than the competitive markets, the BPC began reducing its reliance on borrowing from the IDB's lending arm.

"Besides, lower import payments for crude and refined oil purchases due to the falling petroleum prices on the global market prompted BPC not to borrow higher amounts of credits from the ITFC over the years," he added.

Another EMRD official pointed out that the BPC is now making profit in selling the oils on the domestic market, which also

placed the state-run oil supplier in a better position on its balance sheet.

According to official data, the BPC's loans from the ITFC for oil imports have been shrinking remarkably since 2012.

The data showed credits from the ITFC plunged by nearly 90 per cent to only about US$250 million in the last FY2017 from a peak of $2.60 billion back in 2012.

BPC annually borrows from the IDB's trade-financing wing, ITFC, to procure crude and refined oils from the major oil suppliers in the Gulf, including Kuwait, Saudi Arabia and the UAE.

According to the BPC, its borrowing peaked in 2012 as it took the highest $2.60 billion worth of credits from the ITFC due to higher oil-import bills that time.

That year, oil prices jumped to US$128 per barrel. Currently, the price indices have hit a rock-bottom $48.89 per barrel, as of August 4.

After a record-highest borrowing in the year 2012, BPC's loan started to fall as it took $2.0 billion the following year (2013), $1.20 billion in 2014, $1.0 billion in 2015 and only $250 million in the last FY2017.

 Currently, the government has to repay the IDB's short-term loan (6-month period) at 3.9 per cent interest.

The country's oil-importing agency, BPC, which had been in the red since 1999, made a turnaround with counting profits from September-October period of 2014.

The lower oil-price trends have already saved the government from the burden of heavy subsidy to the power sector that consumes costly fuel oils alongside petroleum products like diesel, octane, petrol and kerosene needed for feeding the domestic market.

A senior Economic Relations Division (ERD) official said a four-member delegation from the ITFC last week visited Dhaka discussing with the ERD, EMRD, and BPC the merit of borrowing their available loans.

The ITFC said it had earmarked $700 million for the last FY2017, and also offered adequate loans for the oil purchase by the BPC for the current FY2018, he told the FE.

However, since BPC has been getting oil from different markets in the globe through open tendering at lower prices and premiums than ITFC's supply arrangements, it is not showing interest to borrow the costlier loan from the IDB's lending arm, the ERD official added.

In the last calendar year, 2016, the BPC imported 4.17 million tonnes of refined oils and 1.31 million tonnes of crude.
Editor : A.H.M Moazzem Hossain
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