DHAKA: The government would pay lower ‘mark-up’ rate, known also as interest rate, to the International Islamic Trade Finance Corporation (ITFC), the lending arm of the Islamic Development Bank (IDB) next year against its loan to import petroleum products, said officials. State-run Bangladesh Petroleum Corporation (BPC) would get the loan at what the ITFC calls a ‘mark-up rate’ of 3.90 per cent, lower by 0.30 per cent from the previous year’s mark-up rate of 4.20 per cent, a senior official of the Ministry of Finance told the FE.
Charging interest rate like conventional banking system is forbidden under Islamic financing. The ITFC will charge 0.20 per cent interest on the letter of credit (LC) facility from the BPC next year, which is 0.05 per cent lower than the current year’s interest rate, he added. A government delegation last week concluded negotiation with the ITFC trimming down the loan amount, ‘mark-up’ rate and interest against letter of credits for import of oil. “It was a success as we could bring down the mark-up and LC interest rate,” said a senior BPC official.
The government’s external borrowing against import of petroleum products is set to fall half to around US$500 million next year due to lower prices in international market, said officials. He said state-run Bangladesh Petroleum Corporation (BPC) could increase the loan amount by up to $200 million more from the ITFC to cover up any contingency fund requirement, if any, he added
The BPC has so far borrowed around $750 million from the ITFC under the loan term of the current year, which was set at around $1.0 billion, a senior BPC official said. The BPC would utilise the ITFC loan to import both crude and refined petroleum products during the period from November 2016 to December 2017. The ITFC is currently the main external lender of the BPC to foot oil import bills.
The BPC usually utilises ITFC loan to import crude oil from Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) to refine in its wholly-owned subsidiary Eastern Refinery Ltd (ERL) in Chittagong. The state-run corporation has been importing about 1.40 million tonnes of crude oil every year for refinery in the ERL over the past several years. The ERL has been in operation over the past 47 years since 1968. Officials said, the lower external loans would reduce the BPC’s import costs substantially and help raise its profit margin against the sale of imported petroleum products at higher rates in local market.
The BPC currently meet lion’s portion of the import bills from sale proceeds of petroleum products as it is fetching hefty profit due to drastic fall of oil prices in international market and the government’s policy of non-adjustment of prices in domestic market. The BPC currently imports refined petroleum products, especially diesel and jet fuel from Kuwait Petroleum Corporation, Emirates National Oil Company and Unipec Singapore Pte Ltd
It has also planned to import furnace oil from Vitol Asia. The BPC’s overall oil imports have been rising steadily over the past several years to meet the increase in domestic demand, especially from oil-fired power plants. The company currently imports around 5.0 million metric tonnes of crude oil and refined oil every year to meet the rising demand.
