Energy Bangla

Energy electricity and environment news portal

Dhaka Thursday,  Aug 18, 2022

Dollar Crunch Threatens To Disrupt Fuel Imports

Reazul Bashar and Sheikh Abu Taleb, bdnews

As a volatile global energy market puts an increasing strain on foreign currency reserves, the Bangladesh Petroleum Corporation says the ‘sluggishness’ of banks in opening letters of credit and clearing past transactions could hinder fuel imports.

But the lending institutions maintain that they are doing ‘everything in their power’ to facilitate energy imports amid the ongoing crisis triggered by the war in Ukraine.

Against the backdrop of a rapidly rising dollar, the wariness of banks to process foreign-exchange transactions is starting to weigh upon the BPC.

“Banks are holding off on opening LCs because of the dollar crisis. Sometimes, they are only making partial payments. Things that were previously done in a day now take up to seven days,” said BPC Chairman ABM Azad.

If the situation persists, he fears the trust of suppliers may erode, which in turn could destabilise the country’s energy security.

The lion’s share of the BPC’s LC transactions is conducted by public banks, namely Sonali, Agrani, Rupali and Janata Bank. However, owing to the massive liabilities involved in fuel imports, the BPC also opens LCs at privately-run institutions such as Islamic Bank Bangladesh, One Bank and Eastern Bank.

But a BPC official said the problems relating to LCs currently extend to both public and private banks. Sonali and Agrani Bank in particular are reluctant to open LCs.

However, the heads of the two state-owned banks say it’s business as usual for them as they continue to manage the process of opening LCs and settling liabilities. These two banks oversee the bulk of the BPC’s transactions and maintain that they are in regular contact with the agency.

Bangladesh mainly buys crude oil from Saudi Aramco and Abu Dhabi National Oil Company.

Refined oil is shipped by eight companies based in Kuwait, Malaysia, the United Arab Emirates, China, Indonesia, Thailand and India.

Banks open and conduct LC transactions with these companies on behalf of BPC. An official at the agency said 10 LCs were opened in July. Five more applications are pending at different banks.

The BPC is planning to open 16 LCs in August and will start the application process on Wednesday, according to the official.

Despite the mounting pressure on foreign reserves, Serajul Islam, executive director of Bangladesh Bank, says fuel imports remain a priority. “The central bank is supplying dollars in accordance with the demand of banks. In this regard, banks are also being asked to source dollars. The central bank also has to be mindful of the foreign exchange reserves.”

“Bangladesh has no import duty arrears. We’ve earned a good reputation for repaying debts,” he added.

The banking sector, which has been struggling to meet the growing demand for dollars in recent months, is now more cautious than ever when it comes to imports. The central bank has also taken steps to shore up the forex reserves.

Bankers and importers say that demand for dollars cannot be met even after dipping into the forex reserves. The taka has continued to depreciate against the dollar and its effects are being felt across the board.



Russia’s invasion of Ukraine has thrown the global energy market into turmoil, just as it was showing signs of recovery from the COVID-19 pandemic. And the BPC has been feeling the heat.

While government subsidies have gone up to offset the losses, the rising prices of fuel have also resulted in the rollback of the country’s power production.

Imports account for almost all of Bangladesh’s fuel oil stock, on which, 90 percent of the transport sector and 34 percent of power generation are dependent. On the other hand, the government has also reduced the number of LNG purchases due to the increase in prices.

Consequently, if fuel imports are hampered by complications in the process of opening LCs, stakeholders believe it could have grave repercussions for other sectors, including electricity.

In these circumstances, the Energy and Mineral Resources Division has written to various organisations and departments of the government, including the Prime Minister’s Office, Finance Department, and Bangladesh Bank, seeking help addressing the issues affecting fuel oil imports, namely the opening of LCs and the dollar crunch.

The letter, issued on Jul 5, notes that the BPC has to open up to 17 LCs every month to import fuel oil.

“Recently, banks have been hesitant about opening LCs for the BPC, citing a shortage of dollars in the domestic market. Even when LCs are opened, payments are being made in multiple instalments, resulting in delays.”

The department warned that relations with fuel oil suppliers were starting to fray as a result.

The price of fuel oil in the international market is continuously rising. The BPC has expressed concern that the country’s energy security may be disrupted if LCs are not opened according to requirements.

On the issue of LCs, BPC Chairman Azad said: “It’s not being done as regularly as before — that’s the problem. It’s not a permanent problem. LCs are ultimately being opened. But the process is marred by delays.”

“The problem for us is that suppliers often don’t want to put up with any delay. They’re used to regular transactions.”

Although there hasn’t been any major issue with suppliers so far, it hasn’t been smooth sailing either, according to Azad.

“The slow pace of transactions could undermine the confidence of suppliers. In that case, if they refuse to supply oil, we won’t have any recourse.”

But suppliers have been considerate so far due to trust that has been garnered over the years, he added.

Azad also flagged concerns about the supply chain. “Ultimately, we fear that the problem may be with the supply chain. That is why we are always trying to be transparent with the government and other agencies while keeping banks updated.”

According to the BPC, 3.06 million tons of refined fuel oil were imported until February of FY22, alongside 870,000 tons of crude oil.



Md Ataur Rahman Prodhan, MD and CEO of Sonali Bank, played down concerns surrounding import transactions. “We are opening LCs for the BPC. I don’t see any problem with that. We opened an LC for imports worth $60 million last week.”

He believes the pressure on banks will be alleviated if they open LCs for the BPC in phases.

Addressing the issue, Mohammad Shams-Ul Islam, MD of Agrani Bank, said, “Agrani Bank has never been averse to opening LCs for the BPC. We always negotiate with the BPC to settle the liabilities of oil exporters. Despite the dollar crisis, we are doing whatever they’re asking of us.”

“As a state-owned bank, we have to prioritise the needs of the people. That’s why we’ve been getting support from the Bangladesh Bank to buy dollars. Agrani Bank also has to buy dollars for the BPC. We have to make arrangements with other banks as well.”

As both are state-owned enterprises, banks offered LC facilities to the BPC at zero cash margin. This, too, has been the source of a longstanding dispute.

However, the BPC claims that when the dollar crisis started, two banks, including Sonali Bank, started ‘dithering’ about opening LCs. When the issue of increased costs in buying dollars came up in discussions, the BPC agreed to pay the additional costs. Yet, banks have still been reluctant to meet the BPC’s demands.

According to the central bank’s data, import bills for petroleum products stood at $7.78 in fiscal 2021-22, up from $3.77 billion the year before.

During this period, LCs worth $8.36 billion were opened, marking a 111 percent year-on-year increase from $3.96 billions.


Commenting is closed here