Import of fuel oil has become risky as LC cannot be opened to import fuel oil due to dollar crisis, Bangladesh Petroleum Corporation (BPC) has said.
Oil supplying foreign agencies are creating pressure as their dues are not paid regularly.
Banks are saying they do not have dollars.
BPC said they are not finding any solution despite sending letters to the concerned departments.
Under the circumstances, on 5 July, the energy and mineral resources division in a letter apprised the prime minister's office, the finance division and the economic relations division of the situation.
"BPC has expressed apprehension that energy security may be hampered if the necessary amount of dollars is not arranged and LCs cannot be opened as per demand," the letter reads.
Referring to the matter as highly urgent, it requested for necessary steps regarding the crisis of foreign currency and complications in opening LC for importing fuel oil.
It is also mentioned in the letter that about hundred per cent fuel oil is imported from abroad. More than once, letters have been sent to Bangladesh Bank and the financial institution division seeking cooperation for availability of dollars and opening LC.
According to the letter of the energy division, some 16 to 17 LCs are opened every month to import fuel oil. LCs are usually opened with Sonali Bank, Rupali Bank, Janata Bank, Agrani Bank, One Bank, Islami Bank and Eastern Bank.
Banks often refuse to open LCs as per demand saying there is a crisis of dollars in the internal market.
BPC has disclosed this more than once. Besides, oil suppliers' payment is being delayed if LCs are opened. Payments are being made in more than one installment. As a result, relations with the fuel oil suppliers may be deteriorated. Price of fuel oil is also increasing in the international market.
BPC sources said complications in opening LC and payment of fuel oil began in April. The power, energy and mineral resources ministry was apprised of the matter. After a letter was sent to Bangladesh Bank from the ministry, some dollars were released. Afterwards, when banks again refused to open LC, BPC sent letters twice to the energy division.
BPC can store fuel oil for 35 to 40 days. Fresh order for fuel oil cannot be given unless LCs are opened. As a result, oil imports will fall. There may be a crisis of supply in the days to come. Electricity generation capacity in the country depends 34 per cent on fuel oil. Some 90 per cent of the transport sector depends on the fuel oil.
Speaking to Prothom Alo about the matter, power, energy and mineral resources state minister Nasrul Hamid said the public banks are displaying an unfriendly attitude. They are doing this to hold foreign currency. Delays mean increasing the price of fuel oil. Bangladesh Bank has been apprised of the matter.
Import cost increased by 111pc
Bank-related persons said import costs have increased to a great extent due to price hike of fuel oil and consumer items in the global market. On the contrary, inward remittance has decreased although the export earnings have increased. A crisis of dollars has been created. As a result, the price of dollars has increased to Tk 93.95. Bangladesh Bank has imposed restrictions on the import of different commodities due to the dollar crisis. Banks have also taken tough steps in opening LCs. There has been fear over the import of very essential items including energy.
PC in fear of energy crisis
The government imports not only fuel oil but also Liquefied Natural Gas (LNG). The private sector imports Liquefied Petroleum Gas (LPG).
According to the Bangladesh Bank statistics, the price of petroleum commodities has increased by 111 per cent till May of 2021-22 fiscal compared to the corresponding period of 2020-21. Earlier, LC of 3.96 billion dollars was opened for energy products, and it has increased to 8.37 billion dollars. During the same period, 3.76 billion dollars has been paid while 7.77 billion dollars have been paid in the last five months. Price of fuel oil has been increasing further in the global market for the last two months. BPC has said it needs to open LC of 730 million to 750 million dollars every month.
Reserves under pressure
Pressure has been created on the foreign exchange reserves of Bangladesh Bank as the income of foreign currency has decreased. The forex reserve is now under 40 billion dollars. Reserves have decreased after the payment of import bill to Asian Clearing Union (ACU). The reserve was 46.15 billion dollars in December 2021.
Speaking to Prothom Alo, Bangladesh Bank executive director and spokesperson Sirajul Islam said dollars are being sold every day to import different items including energy, food and pesticides. Bangladesh Bank is giving this partially. Banks should have an drive to collect dollars. Banks should pay attention to exports and income of wage earners to meet the import expenditure. Efforts are being made to assist them. 70 million dollars have been supplied on Wednesday.
Banks in crisis of dollars
Bank officials said Bangladesh Bank sells dollars to import energy products, pesticides and food items. However, the central bank sells 50 million dollars against the demand of 100 million dollars. The remaining dollars are to be bought from other banks and the price goes up. Buying dollars at higher price, banks have to supply to BPC. As a result, many banks are unwilling to open LC.
Islami Bank managing director Md Monirul Mawla denied that they are unwilling to open LCs. He said it is not like that banks will always make profit. His bank has not refused to open LC of BPC. Some banks may do that due to dollar crisis.
However, Agrani Bank, which is on the top of different commodity imports, export trade and bringing in wage earners' income, is in deficit of 900 million dollars every month. The bank has sent letters to all branch managers in this regard. In the letter, it has been said dollar expenditure of bank has increased by 170 per cent. If income of foreign currency is not raised significantly, a disaster may occur in foreign trade. Crisis of foreign currency will aggravate in the future. Branch managers have been advised not to make any commitment in opening LC and sending dollars abroad.
Agrani Bank managing director Mohammad Shamsul Alam said, "We are unable to understand as to how the crisis of dollars has to be tackled. We are trying at our level best to open LC for import of government items."
Janata Bank managing director Abdus Salam Azad said BPC is an important client. There has been delay in the payment of a few of their import bills due to dollar crisis. Now they are not refusing to open LC of BPC.
Oil suppliers issue warning
Bangladesh imports 1.5 million tonnes of crude oil annually. This oil is imported from Saudi Aramco and Abu Dhabi National Oil Company Limited (ADOCL). However, refined oil is imported in large scale. BPC imports 4 million tonnes of diesel annually. Besides, some other oils including furnace oil and petrol are imported. Kuwait Petroleum Corporation (KPC), Petco Trading Labuan Company Limited (PTLCL) in Malaysia, Emirates National Oil Company (ENOC), PetroChina PTE Limited and Unipec PTE Limited, Bumi Siak Pusako (BSP), PTT International Trading PTE Limited, Numaligarh Refinery Limited (NRL). Out of this, BPC purchases fuel oil through tender.
It is learnt two supplying agencies warn BPC through issuing letters.
Preferring not to be named, a BPC official said the suppliers have accepted to receive payment in installments considering the global situation. Issuing warning that even this cannot be done, oil cannot be supplied any more if this happens. But there is no solution despite sending repeated letters to the government.
Special assistant to former caretaker government chief, M Tamim said it is despite BPC having money, it is of no benefit. Along with high price of energy, dollar crisis emerges. If import decreases, the situation will be devastating in the future. Not only the power sector, but also the transport sector will be under pressure. Dollars must be released for the payment of oil in a bid to avoid a big disaster.
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam.