Bangladesh To Seek ITFC Funds At Reduced Interest Rates

Bangladesh bids for further cut in interest rate on loan from the International Islamic Trade Finance Corporation (ITFC) to help lower the cost of petroleum import further.  A top official said the state-owned Bangladesh Petroleum Corporation (BPC) has undertaken the move to get the interest cuts from the upcoming negotiation with the lender in Jeddah.  

A high-powered delegation led by energy secretary Md Abu Bakar Siddique will be visiting the Saudi Arabian city this month to finalise the loan amount with a lower interest rate, he added. “We shall be seeking US$1.2-1.3 billion from the ITFC as loan for next year to foot the bill for petroleum products from the international market,” a senior BPC official said. The corporation has set a target to get the loan at around 4.0 per cent interest from the ITFC, the lending arm of the Islamic Development Bank Group, he added.

The BPC received $1.2 billion at what ITFC calls a ‘mark-up rate’ of 4.50 per cent, 3.22 per cent lower from the previous year’s 4.65 per cent, said the BPC official. Brent crude, the global oil benchmarks, hit the lowest since 2009 this week, and amounted to less than half their June levels, with Brent crude futures dropping $2.06 a barrel to $48.90. The loan amount and interest will be fixed at the meeting with the ITFC officials, said the BPC official.

Meanwhile, the BPC lowered significantly its annual borrowing by 45.45 per cent to $1.2 billion from the ITFC, for Hijri 1435 that ended in November last year, compared to that of the previous year. The belt-tightening is in line with a recommendation from the International Monetary Fund (IMF).

As per the IMF recommendation the indicative target of BPC’s external borrowing would have to be up to $775million, said the official. The IMF tagged the ‘condition’ with the release of its $982.5 million fund under Extended Credit Facility (ECF) of the lender although several tranches have already been released. In 2013, BPC borrowed $2.2 billion from the ITFC to meet import costs of petroleum products. The amount was $2.6 billion in 2012.  

ITFC provides loan based on the Islamic calendar — Hijri year. And under Islamic financing, interest is forbidden. BPC also has syndication loan with some multinational banks like HSBC, Standard Chartered and deferred-payment schemes in place to fund fuel imports.

It has also deferred payment mechanism to import petroleum products from four oil suppliers. The BPC purchases oil products from the international market and sells at ‘administered rates’ to domestic users. 
The Corporation has set a target to import around 5.81 million tonnes of petroleum this year–up 7.50 per cent from the previous calendar year. Of the total requirement, it has finalised contracts to import around 3.60 million tonnes of refined petroleum products from nine different suppliers of the Middle East and Southeast Asia.

The BPC has deals with the Kuwait Petroleum Corporation (KPC), Petco — the trading arm of Malaysia’s Petronas, the Emirates National Oil Company (ENOC), the Philippines National Oil Company (PNOC), the PetroChina, the Unipec Singapore Ltd, Vietnam’s Petrolimex, Indonesia’s PT Bumi Siak Pusako and Brunei’s PB Trading to import refined petroleum products until December 2015.

It also expects to import around 1.40 million tonnes of crude oil from Saudi Arabia’s Aramco and the Abu Dhabi National Oil Company throughout the year. The BPC’s oil import has been on the steady rise over the past several years to meet a growing local demand, especially for oil-fired power plants.