M Azizur Rahman
The government mulls floating of special bonds in the fiscal year (FY) 2012-13 to help the state-owned Bangladesh Petroleum Corporation (BPC) pay off its overdue bank loans, a top official said.
"We intend to settle the BPC's subsidy-related loans with the state-owned commercial banks (SoBs) by issuing the special bonds in the FY '13," the Ministry of Finance (MoF) stated in its memorandum of economic and financial policies submitted to the International Monetary Fund (IMF) recently.
However, issuance of the bonds is subject to findings of an audit conducted by the Office of the Auditor General (OAG) to be completed by June 2013, according to the MoF memorandum.
A senior BPC official said the corporation's debt to banks rose to around Tk 117 billion (US$ 1.44 billion) in the past two and a half years.
"We have discussed the floatation of special bonds," said the official.
If floated, it would be the BPC's first-ever bond in the financial market, he added.
Bangladesh received $138 million in the second tranche of credit from the IMF under its Extended Credit Facility (ECF) early this month after carrying out several reform measures including a hike in domestic oil product prices.
The $987 million ECF credit deal was signed in April 2012 between the government of Bangladesh and the IMF.
Officials said the MoF moved to float the special bonds, as the BPC in January last had sought funding assistance from the state-coffer to pay off the loans and recover the losses it incurred over the past two and a half years.
Currently the finance ministry lends money to the BPC on a quarterly basis to help it pay fuel import bills.
The BPC got Tk 12.22 billion as loan last week from the state-coffer to meet the fuel oil import bills for the first quarter of 2013 (January-March), another BPC official said.
The MoF provided the loan at an interest rate of 5.0 per cent, he said.
The finance ministry in December last also provided a similar volume of loan, Tk 12 billion, at the same interest rate to help meet oil import costs during the last quarter (Oct-Dec) of 2012.
The BPC is incurring losses, as it buys fuel from the international market at higher rates and sells it at lower rates in the domestic market.
The losses have been mounting significantly since July 2010 as the import of petroleum products has risen against the growing demand in the domestic market.
Bangladesh launched a short-term drive in mid-2010 to ease the country's electricity crisis by installing more than three dozen gas-oil and high-sulfur fuel oil-fired power plants and most of these plants are now online.
The corporation was not being able to pay off the debts to banks, repay the loan to the International Islamic Trade Finance Corporation (ITFC), the financing arm of the Islamic Development Bank, the BPC top brass said earlier.
The BPC owes a sum of Tk 89 billion to different entities on account of imports in the previous two FYs -- 2010-11 and 2011-12, while another amount of Tk 28 billion is payable for the period between July and November of the current fiscal.
The BPC usually funds its oil imports with loans from the ITFC, foreign banks and through the deferred payment mechanism.
It also receives loans on soft terms from the finance ministry regularly.
Despite nearly 12 per cent hike in prices of diesel, kerosene and octane on January 3 last the BPC still incurs an estimated loss of Tk 11.77 per litre of diesel and Tk 12.15 per litre of kerosene, according to a BPC official.
The state-owned corporation plans to import about 5.9 million tonnes of crude oil and refined products in the FY 2012-13, up by 11.3 per cent from the import of 5.3 million tonnes the year before.
It currently has term deals in place until December 2013 to import refined oil products from the Kuwait Petroleum Corp., Petco which is the trading arm of Malaysia's state-owned Petronas, the Philippine National Oil Company, the Emirates National Oil Company, Egypt's Middle East Oil Refinery, Maldives National Oil Company, China's state-owned entity PetroChina and Indonesia's Bumi Siak Pusako.
It also has deals in place to import crude oil from the Saudi Aramco and the Abu Dhabi National Oil Company.