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CHATTOGRAM: The Bangladesh Petroleum Corporation (BPC) is facing difficulties in importing fuel oils as the state-owned commercial banks are unwilling to open letters of credit (LCs) on grounds of incurring losses due to the foreign exchange rate fluctuations.
On October 18, the Rupali Bank Ltd. declined to open an LC for import of fuel oil worth US$20 million. The movement of the exchange rate of Bangladesh Taka against the greenback would cause a huge amount of financial loss to the commercial bank, it argued.
The Rupali Bank also requested the state-run BPC to purchase the US dollars for opening the LC at the market rate or forward rate.
The bank, however, opened the LC on Sunday afternoon as per the decision taken by the higher authority at the Rupali Bank head office.
BPC sources said the corporation that imports and markets fuel oils in the country opens 12 to 19 LCs involving US$ 300-500 million a month.
A mother tanker carrying the imported fuel oils is scheduled to arrive at Chattogram port on October 27. And the LC was required to be opened 10 days before the arrival of the consignment, they said.
In the fiscal year 2017-18, the petroleum corporation imported 6.8 million tonnes of fuel oils worth $3.7 billion (370 crore) and paid Tk 90 billion in VAT and taxes against the import, the sources said.
The BPC had incurred losses during the period of 1996-2014 before making a turnaround. It used to open LCs through 10 banks in the public and private sectors and also through some foreign banks operating in the country.
Later, the BPC stopped opening LCs through private and foreign banks as they demanded payment for the US dollars "at the actual rate". But the public banks also started following the suit in January 2018.
In a letter to the BPC sent on October 18, the Rupali Bank said it incurred financial losses totalling Tk 400 million (40 crore) on account of LC opening for fuel import in the 10 months from January this year.
The letter signed by General Manager Khan Iqbal Hossain at the local office of Rupali Bank at Dilkusha C/A in Dhaka also said the bank would suffer a big financial loss if the bill is not paid at the market rate or at the actual rate of US dollar.
The bank urged the BPC authority to agree on buying dollars at the 'Market Rate/Forward Rate' while opening LCs.
When contacted, Md Altaf Hossain Chowdhury, director (finance) of the BPC, told the FE on Sunday that the BPC had been working to ensure smooth supply of fuel oils across the country through import of 6.8 million tonnes of crude and finished petroleum products, 80 per cent of which is diesel.
"Rupali Bank Ltd. has recently requested us to agree on buying dollars at the market price. But we cannot pay the dollar price ignoring the existing rate. It will cause inflation in the market and have a negative impact," he said.
He further said the BPC would also have to face audit objections because it was not only the BPC that was opening LCs. Many other government and private firms were also opening LCs, he added.
The BPC held a deposit of Tk 28.30 billion with different branches of the Rupali Bank and it opened LCs for fuel import worth $850 million (Tk 68.64 billion) since 2017, he said.
He also said that the BPC, the state-run agency, was incurring losses amounting to Tk 300 million every day on account of fuel import, as it sells fuel oils at subsidised rates.
It was not considering any fuel price hike right now to cover the import cost, he added.
Mohammed Jahangir, General Manager and Divisional Head of Rupali Bank Ltd., Chattogram, said they opened the LC for the BPC as per the decision of the bank's head office as both the BPC and Rupali Bank are the state-owned entities.