Bangladesh Petroleum Corporation (BPC) owes state-owned banks more than Tk 17,000 crore as of January 12, making the banks reluctant to open further letters of credit meant for fuel import.

The banks have already conveyed their stance on LC opening at a high level meeting with Finance Minister AMA Muhith on Tuesday night.

Bangladesh Bank Governor Atiur Rahman, officials of the four banks, and other senior government officials were present at the meeting.

Officials of the banks said the BPC's overdues to the banks have gradually been rising in the recent times. As a result, the banks are facing a liquidity dearth.

On December 31, 2010, the state-run BPC owed the banks Tk 8,780 crore, and the amount more than doubled in just one year.

A finance ministry official who attended the meeting said they have requested the finance ministry to arrange the BPC's overdues in cash, not in bond.

Earlier the BPC made its payment in bond but it was not helpful in solving their liquidity crisis.

However, the finance minister told the banks that the Finance Division is working on their accounts and will take a step soon for repayment.

An official of the energy ministry said the BPC's losses were three times higher last fiscal year than the previous year.

The amount of losses stood at Tk 7,208 crore last fiscal year due to a big difference between BPC's purchase price of fuel and selling price in the local market, he added.

The official also said fuel prices were hiked several times in the current fiscal year, but the amount of losses did not decrease due to a huge depreciation of the taka against the dollar.

To offset the losses, fuel prices need to be increased further, he said.

The meeting also discussed the issue of taking credit for the BPC from a foreign lender, Islamic Trade Finance Corporation (ITFC).

The ITFC has decided to raise the credit limit for the BPC to $2.5 billion from this year.

Of the amount, $500 million will be taken for this year through special arrangement, and the amount will have to be repaid in nine months.

In line with the new conditions of the ITFC, it will now open LCs worth $500 million.

Usually the state banks open the LCs under the ITFC credit limit.

At the meeting, the state banks were also told that they will have to repay $500 million credit. However, the banks set three conditions for paying the loan.

The conditions are -- the BPC will have to pay the amount in local currency; the BPC will inform the banks about the repayment date at least 15 days ahead of the payment; and if the banks have a dearth of foreign currency at that time, the central bank will supply the foreign exchange.

The Daily Star/Bangladesh/ 1st March 2012