Energy Division looks for additional loans to pay petroleum, gas, LNG dues

The Energy and Mineral Resources Division is set to acquire an additional $900 million in loans from the International Islamic Trade Finance Corporation, which has already approved a $1.4 billion loan to the Bangladesh Petroleum Corporation (BPC), to settle crude oil import bills for fiscal 2023-24.

In an unprecedented move, the Bangladesh Oil, Gas and Mineral Resources Corporation (Petrobangla) – the state-owned organisation responsible for producing and purchasing gas and LNG – has sought $500 million in loan from the Islamic Trade Finance Corporation to clear overdue payments to liquefied natural gas (LNG) suppliers and gas producers.

In another development, the BPC, in addition to its existing approved $1.4 billion loan, has sought an additional $400 million in loan to settle outstanding dues to refined petroleum products suppliers.

A meeting is scheduled on 23 July 2023 by the Economic Relations Division of the Ministry of Finance to discuss the proposal.

Md Altaf Hossain, director (finance, additional charge) of Petrobangla, told The Business Standard that the wished-for loan is intended to address the current economic challenges posed by the need to settle dues to LNG suppliers and international oil companies producing gas from local fields.

"Clearing LNG and gas suppliers' bills requires dollars which is the main obstacle in the current economic situation. So, we have proposed taking a loan that would help us to pay the dues," he said.

Petrobangla has opted for the Islamic Trade Finance Corporation debt after its request for a loan of Tk7,181 crore from the finance ministry was denied earlier this month.

Altaf also asserted that Petrobangla is in a favourable financial position to repay the loan, a claim supported by an analysis of the organisation's income and expenditure.

As of 15 July this year, Petrobangla owes $570 million to long-term and spot market LNG suppliers and international oil companies, including Chevron and Tullow.

In response to Petrobangla's failure to clear these dues, some spot market LNG suppliers have refused to supply further shipments until they receive their outstanding payments.

Bangladesh currently imports LNG from two long-term suppliers – Qatargas and Oman Trading International (OTI) – as well as from spot suppliers such as TotalEnergies, Vitol, and Singapore-based Gunvor.

Officials of Petrobangla have expressed concerns that any interruption in LNG delivery due to payment issues could severely impact the country's gas supply network, potentially affecting electricity production, industrial operations, and domestic consumption.

BPC seeks loan to pay refined fuel bills

The Bangladesh Petroleum Corporation has a longstanding history of taking loans from the International Islamic Trade Finance Corporation, a member of the Islamic Development Bank Group, to pay the import bills of crude oil – since 1997.

However, for the first time, the corporation is now going to secure a loan from the ITFC to cover the import bills of refined petroleum products.

ABM Azad, chairman of the BPC, told TBS that the decision to seek additional funding from Islamic Trade Finance Corporation was driven by an uncomfortable situation arising from delayed bill payments caused by the ongoing dollar crisis.

"The proposed additional loan will help us pay the refined fuel bills, which will ease the situation," he added.

In a recent press release, the lending agency revealed that since 2008, it has provided the Bangladesh government with over $16 billion in financial support to enhance the country's energy security.

Kazi Mohammad Mozammel Hoque, director (finance) of the BPC, stated that one of the key benefits of borrowing from Islamic Trade Finance Corporation is the six months' deferred repayment option with the Secured Overnight Financing Rate (SOFR) plus 2%. The SOFR, a benchmark interest rate for dollar-denominated derivatives and loans, replaced the London Interbank Offered Rate (Libor).

At present, the BPC imports approximately 7 million tonnes of petroleum products, while the total fuel demand in the country stands at around 10 million tonnes.

The rest of the demand is met through imports by private power producers for electricity production.

In 2022, the BPC imported 1.47 million tonnes of crude oil and 5.56 million tonnes of refined petroleum products, according to its official data.