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As a risky world power market places an growing pressure on overseas foreign money reserves, the Bangladesh Petroleum Company says the ‘sluggishness’ of banks in opening letters of credit score and clearing previous transactions might hinder gas imports.
However the lending establishments keep that they’re doing ‘all the things of their energy’ to facilitate power imports amid the continuing disaster triggered by the battle in Ukraine.
Towards the backdrop of a quickly rising greenback, the wariness of banks to course of foreign-exchange transactions is beginning to weigh upon the BPC.
“Banks are holding off on opening LCs due to the greenback disaster. Typically, they’re solely making partial funds. Issues that had been beforehand accomplished in a day now take as much as seven days,” mentioned BPC Chairman ABM Azad.
If the scenario persists, he fears the belief of suppliers might erode, which in flip might destabilise the nation’s power safety.
The lion’s share of the BPC’s LC transactions is carried out by public banks, particularly Sonali, Agrani, Rupali and Janata Financial institution. Nevertheless, owing to the large liabilities concerned in gas imports, the BPC additionally opens LCs at privately-run establishments reminiscent of Islamic Financial institution Bangladesh, One Financial institution and Japanese Financial institution.
However a BPC official mentioned the issues referring to LCs presently prolong to each private and non-private banks. Sonali and Agrani Financial institution particularly are reluctant to open LCs.
Nevertheless, the heads of the 2 state-owned banks say it’s enterprise as common for them as they proceed to handle the method of opening LCs and settling liabilities. These two banks oversee the majority of the BPC’s transactions and keep that they’re in common contact with the company.
Bangladesh primarily buys crude oil from Saudi Aramco and Abu Dhabi Nationwide Oil Firm.
Refined oil is shipped by eight firms based mostly in Kuwait, Malaysia, the United Arab Emirates, China, Indonesia, Thailand and India.
Banks open and conduct LC transactions with these firms on behalf of BPC. An official on the company mentioned 10 LCs had been opened in July. 5 extra purposes are pending at totally different banks.
The BPC is planning to open 16 LCs in August and can begin the appliance course of on Wednesday, in line with the official.
Regardless of the mounting stress on overseas reserves, Serajul Islam, government director of Bangladesh Financial institution, says gas imports stay a precedence. “The central financial institution is supplying {dollars} in accordance with the demand of banks. On this regard, banks are additionally being requested to supply {dollars}. The central financial institution additionally needs to be conscious of the overseas alternate reserves.”
“Bangladesh has no import responsibility arrears. We’ve earned a very good fame for repaying money owed,” he added.
The banking sector, which has been struggling to fulfill the rising demand for {dollars} in current months, is now extra cautious than ever in the case of imports. The central financial institution has additionally taken steps to shore up the foreign exchange reserves.
Bankers and importers say that demand for {dollars} can’t be met even after dipping into the foreign exchange reserves. The taka has continued to depreciate in opposition to the greenback and its results are being felt throughout the board.
ENERGY DIVISION CONCERNED
Russia’s invasion of Ukraine has thrown the worldwide power market into turmoil, simply because it was displaying indicators of restoration from the COVID-19 pandemic. And the BPC has been feeling the warmth.
Whereas authorities subsidies have gone as much as offset the losses, the rising costs of gas have additionally resulted within the rollback of the nation’s energy manufacturing.
Imports account for nearly all of Bangladesh’s gas oil inventory, on which, 90 p.c of the transport sector and 34 p.c of energy era are dependent. Then again, the federal government has additionally diminished the variety of LNG purchases because of the improve in costs.
Consequently, if gas imports are hampered by problems within the technique of opening LCs, stakeholders imagine it might have grave repercussions for different sectors, together with electrical energy.
In these circumstances, the Vitality and Mineral Assets Division has written to numerous organisations and departments of the federal government, together with the Prime Minister’s Workplace, Finance Division, and Bangladesh Financial institution, looking for assist addressing the problems affecting gas oil imports, particularly the opening of LCs and the greenback crunch.
The letter, issued on Jul 5, notes that the BPC has to confide in 17 LCs each month to import gas oil.
“Just lately, banks have been hesitant about opening LCs for the BPC, citing a scarcity of {dollars} within the home market. Even when LCs are opened, funds are being made in a number of instalments, leading to delays.”
The division warned that relations with gas oil suppliers had been beginning to fray consequently.
The worth of gas oil within the worldwide market is constantly rising. The BPC has expressed concern that the nation’s power safety could also be disrupted if LCs aren’t opened in line with necessities.
On the problem of LCs, BPC Chairman Azad mentioned: “It’s not being accomplished as frequently as earlier than — that’s the issue. It’s not a everlasting drawback. LCs are in the end being opened. However the course of is marred by delays.”
“The issue for us is that suppliers usually don’t wish to put up with any delay. They’re used to common transactions.”
Though there hasn’t been any main situation with suppliers to date, it hasn’t been clean crusing both, in line with Azad.
“The sluggish tempo of transactions might undermine the arrogance of suppliers. In that case, in the event that they refuse to provide oil, we received’t have any recourse.”
However suppliers have been thoughtful to date as a result of belief that has been garnered over time, he added.
Azad additionally flagged considerations concerning the provide chain. “In the end, we worry that the issue could also be with the availability chain. That’s the reason we’re at all times making an attempt to be clear with the federal government and different companies whereas protecting banks up to date.”
In response to the BPC, 3.06 million tons of refined gas oil had been imported till February of FY22, alongside 870,000 tons of crude oil.
WHAT BANKS ARE SAYING
Md Ataur Rahman Prodhan, MD and CEO of Sonali Financial institution, performed down considerations surrounding import transactions. “We’re opening LCs for the BPC. I don’t see any drawback with that. We opened an LC for imports value $60 million final week.”
He believes the stress on banks will probably be alleviated in the event that they open LCs for the BPC in phases.
Addressing the problem, Mohammad Shams-Ul Islam, MD of Agrani Financial institution, mentioned, “Agrani Financial institution has by no means been averse to opening LCs for the BPC. We at all times negotiate with the BPC to settle the liabilities of oil exporters. Regardless of the greenback disaster, we’re doing no matter they’re asking of us.”
“As a state-owned financial institution, now we have to prioritise the wants of the folks. That’s why we’ve been getting help from the Bangladesh Financial institution to purchase {dollars}. Agrani Financial institution additionally has to purchase {dollars} for the BPC. Now we have to make preparations with different banks as properly.”
As each are state-owned enterprises, banks provided LC services to the BPC at zero money margin. This, too, has been the supply of a longstanding dispute.
Nevertheless, the BPC claims that when the greenback disaster began, two banks, together with Sonali Financial institution, began ‘dithering’ about opening LCs. When the problem of elevated prices in shopping for {dollars} got here up in discussions, the BPC agreed to pay the extra prices. But, banks have nonetheless been reluctant to fulfill the BPC’s calls for.
In response to the central financial institution’s information, import payments for petroleum merchandise stood at $7.78 in fiscal 2021-22, up from $3.77 billion the yr earlier than.
Throughout this era, LCs value $8.36 billion had been opened, marking a 111 p.c year-on-year improve from $3.96 billions.
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