Amid the ongoing dollar crisis, the Bangladesh Petroleum Corporation (BPC) is desperately searching for an effective alternative to pay its outstanding fuel bills to foreign exporters. It is now considering paying bills to China in yuan and to India in rupees (INR).
The corporation has already issued a letter to the ministry of power, energy, and mineral resources with a proposal in this regard.
Earlier, Russia and Bangladesh agreed to use the Chinese currency, yuan, as an alternative to the dollar for transactions of the Rooppur nuclear power plant. A BPC official said China has been asked to propose the use of yuan for payment of Chinese fuel oil bills. However, this is still in the initial stage.
There has been a severe crisis of dollars in commercial banks for over a year and it hampered payment of import bills of fuel oil. Foreign fuel suppliers are also mounting pressure to settle the outstanding bills.
In such a situation, the BPC sent the letter to the ministry on 11 May, proposing to trade with India in rupees. The letter noted that the import bills could be settled due to the dollar crisis in the currency market and the low supply of dollars from the central bank.
Currently, it takes 25 to 30 days for a letter of credit to be settled. In the letter, the BPC requested the energy division to take necessary measures in coordination with the central bank, finance ministry, prime minister's office, and other concerned offices to ensure uninterrupted fuel imports.
The letter also suggested that the Bangladesh Bank may issue necessary instructions to banks if they agree to open and settle letter of credits in Indian currency. Subsequently, the Indian central bank will be informed regarding this matter.
State minister for power, energy, and mineral resources Nasrul Hamid said it is crucial to consider the opinion of the Bangladesh Bank in this regard.
According to the BPC, One Bank, Islami Bank, Eastern Bank, Standard Chartered, and HSBC used to open letters of credit (LCs) for importing fuel oil, but they have not been doing so for over two years.
The BPC needs to open 17 to 18 LCs per month to import 500,000 tonnes of refined fuel and 100,000 tonnes of crude oil. Currently, Sonali, Janata, and Rupali Bank are opening four to five LCs per month, while Agrani Bank is opening only one.
Seeking anonymity, a BPC official said the BPC has outstanding bills of USD 350 million in total until April. Against such a backdrop, foreign suppliers have threatened to halt the supply unless the bills are settled soon.
In the letter, BPC mentioned that the Indian oil company (IOCL) started supplying fuel to Bangladesh in January. It was scheduled to transport fuel in five cargo vessels until May. However, they did not send three shipments after the BPC failed to pay the bills for the first two consignments.
The BPC has been purchasing diesel from India's Numaligarh Refinery Limited since 2016. The fuel was initially imported on diesel wagons and later it has been supplied through the friendship pipeline between the two countries since 18 March.
According to the BPC, a total of 58,000 tonnes of diesel will be purchased from Numaligarh between May and December this year. Additionally, 160,000 tonnes of diesel and 30,000 tonnes of jet fuel will be bought from the IOCL. The total purchase will cost USD 147 million or Rs 12.09 billion.
BPC has an annual fuel demand of 6 million tonnes, and the only local oil refinery has a refining capacity of 1.5 million tonnes. The remaining demand is met through imports from Saudi Arabia and the United Arab Emirates.
Apart from that, BPC purchases 4.5 million tonnes of refined fuel, such as diesel, petrol, jet fuel, and furnace oil, from Singapore, Malaysia, Indonesia, UAE, Kuwait, Thailand, China, and India. Diesel accounts for almost 75 per cent of the fuel oil used in the country, and 80 per cent of the diesel is directly imported.
According to BPC officials, the target for diesel imports from India in the next seven months is 14 per cent of the total diesel imports during that period. However, the government wants to increase diesel imports from India due to the lower cost of transportation.
While talking about the use of yuan and rupee, Mustafizur Rahman, distinguished fellow of the Center for Policy Dialogue (CPD), pointed out several challenges. First of all, there is an issue of securing consent from the central banks of the two countries.
In the next step, the Bangladesh Bank should have sufficient reserves of rupees or yuan as required by the BPC. There is also the challenge of determining the exchange rates of rupees and yuan against the taka and the dollar. Central banks may consider the proposal amidst the ongoing dollar crisis, but they may not have adequate reserves of rupees or yuan. Some bills may be paid with the current reserve of rupees or yuan, not the big transactions.