The country is facing serious challenges to ensure fuel and energy supply as debt-dependent "finance management system" makes foreign trade fragile, which also affected countrys other important imports due to high expense of fuel imports, experts opined.
The issue once again has come to surface as the Energy Division has finalised a loan deal in recent time to support the Bangladesh Petroleum Corporation (BPC), which would enable the BPC to go for a syndicated loan of around US$400m from three multinational banks under the supervision of International Monetary Fund (IMF). The banks are Standard Chartered Bank (SCB), Hong Kong and Shanghai Banking Corporation (HSBC) and Citibank NA.
"Finance Division has asked the cash-strapped state agency (BPC) to make sure that the foreign credit is not crossing the credit limit that ranged between $350m and $400m in accordance with an IMF condition under its extended credit facility," a senior official of the Finance Division said preferring anonymity.
According to the IMF credit limit, Bangladesh should not go beyond $1.5bn a year, sources in the finance division say. He said the loan is now at the final stage before signing an agreement within a month.
Presently, the government would require $3.5bn to import around seven million tonnes of petroleum oil annually to meet the domestic demand.
The Islamic Trade and Finance Corporation (ITFC), a subsidiary agency of Islamic development Bank (IDB), approved $2bn hard-term loan to BPC while the government would mobilise rest of the amount from the syndicated loan and own resources. However, these above mentioned three Banks came forward to support the BPC to get finance.
However, this is the first time a loan is being taken from ITFC for LNG imports. Last year, the government also entered into an agreement to borrow $1.4 billion from ITFC to import fuel oils. Of this, BPC took $800 million, and the remaining $600 million is due by June.
"This is obviously a system to run the organization on ad-hoc basis, yes, it will apparently ensure energy supply but financial challenges will also be increased through this step. Besides, if the repayment capacity of BPC and Petrobangla does not increase and if the countrys foreign exchange supply situation does not improve, this short-term loan will become a serious headache for the country," Khondokar Golam Moazzem of CPD has said.
He said initiatives should be taken to address the main problems of the energy sector, increasing the supply of domestic gas production needs to be prioritised, and initiatives are needed to promote the use of solar energy for irrigation, which will help us to dependent on diesel fired irrigation pumps.
"The government came up under huge pressure from the global lending agencies, under such pressure by the IMF, Energy Division increased the price of fuel last month to cut the subsidy burden….we are facing, these are the outcome of such short term ad-hoc basis solution," Dr M Tamim, former Energy adviser and energy expert has said.
According to him, the Petrobangla should take serious initiative to extract its own gas, we have to import some amount even more in future but we could not sit idle, if we review the Petrobanglas operation in the last decades, we do not see any action oriented step rather it takes more steps to import LNG from abroad, he added.
As per the energy division proposal, the lenders sought immediate guarantee of Bangladesh Bank and counter-guarantee from the finance division.
Meanwhile, under the credit agreement, the ITFC will finance BPC to import petroleum fuels and state-owned Petrobangla to import liquified natural gas (LNG).
Bangladesh has secured a $2.1 billion loan from the Jeddah-based International Islamic Trade Finance Corporation (ITFC) to address its critical energy import requirements for the fiscal 2024-25, a substantial increase from the $1.4 billion obtained in the current fiscal year.
The countrys energy import bill, including petroleum and LNG, stood at around $10 billion in the fiscal 2022-23, with a similar amount expected for the current fiscal year ending in June.
Experts forecast that if Bangladesh continues to rely on imports in this manner, the energy bill could double by 2030.
CAB energy expert Dr Shamsul Alam said the government has introduced a dynamic pricing system for fuel oil from March this year. After importing fuel oil using this high-interest loan, its price will also be higher under dynamic pricing. This means that the higher price and the accrued interest will be passed on to consumers.
Last month, State Minister Nasrul Hamid said the government is committed to ensuring energy security. He said that maintaining energy security has become quite challenging due to the global rise in oil and gas prices. He said this credit support will help the government smoothly import petroleum fuel and LNG.
