Bangladesh secures $2.1b loan for energy imports

Infographic: TBS

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.

Under the terms of the credit agreement, the ITFC will fund the state-owned Bangladesh Petroleum Corporation (BPC) for petroleum product imports and Petrobangla for liquefied natural gas (LNG) imports.

The agreement, inked on Wednesday between the ITFC and the Energy and Mineral Resources Division of Bangladesh. The Energy and Mineral Resources Secretary Md Nurul Alam and Nazeem Noordali, the chief operating officer and head of the ITFC delegation, signed on behalf of their respective parties.

State Minister for Power, Energy, and Mineral Resources Nasrul Hamid attended the signing ceremony held at the ministry.

The ITFC will disburse the loan after sourcing funds from various organisations, with $800 million provided by the Bangladesh Bank.

On Wednesday, the government also approved imports of three LNG cargoes from Singapore-based companies.

State Minister Nasrul 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.

"Efforts to increase domestic natural gas and oil exploration and production are underway, along with initiatives to enhance cooperation with oil and gas-rich countries," he said.

He said this credit support will help the government smoothly import petroleum fuel and LNG.

The state minister said that $1.6 billion will be utilised to import petroleum fuels, while the remaining $500 million will be used to import LNG. 

Energy Secretary Nurul Alam told TBS that energy prices fluctuate and the amount of imports may increase in the future.

Accordingly, more loans will be taken for importing fuel oils than last year. Alongside, loans are also taken for LNG imports, considering the shortage of dollars in the country.

The country's 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.

Experts say the government is considering introducing 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.

Increased financial challenge

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), told TBS that the government is borrowing heavily to maintain normal energy supply. 

"This will apparently ensure fuel and energy supply. However, financial challenges will also increase. Besides, if the repayment capacity of BPC and Petrobangla does not increase and if the country's foreign exchange supply situation does not improve, this short-term loan will become a headache," he said. 

This debt-dependent energy supply makes foreign trade fragile. Other important imports are expected to contract due to high expense of fuel imports, he added.

He said initiatives should be taken to address the main problems of the energy sector, adding domestic gas production needs to be prioritised, and initiatives are needed to promote the use of solar energy for irrigation.

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 next June. Due to the dollar crisis, the instalments of this loan could not be paid on time. Later, an extension of time was sought from ITFC.

Bangladesh is the top beneficiary of the ITFC in the energy sector. According to the ITFC's website, it financed Bangladesh with the highest amount of $1.16 billion in 2022, up from $600 million a year ago. 

Since its inception in 2008, the ITFC has approved trade finance proposals totalling nearly $16.50 billion for Bangladesh. The private sector, including banks, takes trade finance from the ITFC.

The repayment period for the loan has been set for one year, with an interest rate to be calculated using the Secured Overnight Financing Rate (SOFR) plus 2%. This 2% includes a 1.80% interest rate and a 0.20% administrative charge. 

This administrative charge must be paid before obtaining the loan. As of 7 February, SOFR was at 5.31%, with fluctuations expected. However, forecasts from the central banks of various countries indicate that SOFR will increase in the coming months.

The loan amount will be repaid in two instalments at an interval of six months. Now, the Energy Division will send the deal to the Non-Concessional Loan Committee, headed by the finance minister, for no-objection. After its approval, the division will apply to the ITFC for the release of the fund. 

Initially, the Energy Division will utilise the funds to import LNG. Officials at this division believe that they will be able to make payments for LNG imports in the first week of February or March. Subsequently, BPC will receive funds for fuel imports around June or July.

Due to the foreign exchange crisis in the country, BPC and Petrobangla have been unable to pay their dues to foreign suppliers on time for over a year. The two institutions currently owe more than $500 million, with arrears at one time exceeding $1 billion. 

Even international suppliers have said about halting delivery of fuel, oil, and gas due to non-payment of dues.

A reduction in imports since December has decreased BPC's arrears, with the state-run agency currently having a little over $100 million in debt.

LNG import approvals 

The Cabinet Committee on Government Purchase approved three separate proposals presented by the Energy Division. Petrobangla will purchase the cargoes from the spot market. 

Petrobangla will import two LNG cargoes from Golbar Singapore Limited, with each cargo containing 33.60 lakh MMBtu. Each cargo will cost Tk425.81 crore, with every unit costing $9.847. 

The state-run agency will bring in the third cargo from Vitol Asia (pvt) Limited, Singapore. It will cost Tk422.48 crore, with each unit priced at $9.770. 

Energy Division officials said the country plans to import a total of 13 LNG cargoes in the first six months of this year. 

After LNG prices skyrocketed following the outbreak of the Russia-Ukraine war, the government suspended its imports from the spot market for around seven months from July 2022.