The Ministry of Finance (MoF) has decided to issue Special Treasury Bond worth Tk 57.32 billion to three state-owned commercial banks (SCBs) -- Sonali, Janata and Agrani -- to clear off the outstanding amount of loans of Bangladesh Petroleum Corporation (BPC) that it owes to the SCBs for importing oil.

Finance Minister AMA Muhith last week approved the issuance of bond in favour of three SCBs, a senior official in the ministry said.

Of Tk 57.32 billion, bond worth Tk 22.14 billion will be issued in favour of Sonali Bank Ltd and Tk 18.13 billion to Janata Bank Ltd. The rest of the amount -- Tk 17.04 billion -- will be issued in favour of Agrani Bank Ltd.

"We are going to issue Special Treasury Bond worth Tk 57.32 billion to three SCBs as the banks opened Letters of Credit (L/Cs) in favour of BPC to import petroleum oil," a top MoF official told the FE on Wednesday.

"The aggregate amount of outstanding liabilities of the BPC to three SCBs stood at Tk 57.32 billion as of June 30 this year," he added.

Chairman of BPC Abubakr Siddique said the large liabilities of the BPC to SCBs have mainly been due to sale of petroleum products by the corporation to the domestic market at prices less than their procurement cost.

"After issuance of bond, the banks will have no problems in opening L/Cs for the BPC," Siddique told the FE on Wednesday.

He said the BPC now incurs loss to the tune of Tk 17.38 for selling per litre of diesel and furnace oil in the local market.

According to the BPC, the corporation will incur an aggregate loss, amounting to Tk 132 billion in the current fiscal year, if the prices of diesel and furnace oil are not increased further.

The bond bears 7.0 per cent rate of interest and can be used by them for meeting their statutory liquidity requirement (SLR) by the BB, said the MoF official.

Officials in the MoF said the decision of issuing bond came after Sonali, Janata and Agrani had repeatedly been seeking fund from the government to address their severe liquidity problems.

Earlier in September last, the MoF issued similar bond in favour of Agrani for an amount of Tk 8.0 billion for the same purpose.

High officials in the SCBs said the BPC has been importing a large quantity of petroleum in recent months, creating fresh pressure on the SCBs to open letters of credit (LCs) with their own resources.

"We have to open LCs for the BPC, but the corporation cannot repay the money as it sells the imported petroleum in the local market at prices lower than their imported cost," a banker said.

He said the banks opt for cash money, instead of bond.

However, officials said the government has dearth of cash flow at present. The government borrowed over Tk 100 billion high-powered money from the Bangladesh Bank through overdraft during the first four months of the current fiscal, they added.

The Special Treasury Bond worth Tk 57.32 billion will be issued in three phases. Of the total amount, bond worth Tk 19 billion will be issued to three banks concerned today (Thursday), a high official in the MoF said.

He said the liability of the BPC to three SCBs, against which bond will be issued, will be considered as part of the government's total subsidy bill.

Source: The Financial Express/ Bangladesh/ 15th Dec 2011