How BPC settled $578 million in unpaid bills in three months

Amin Ul Ahsan, chairman of BPC, which is responsible for the import, distribution and marketing of petroleum and petroleum products, attributed the rapid debt repayment to strategic shifts that restored the agency’s image and strengthened its bargaining position with suppliers.

Bangladesh Petroleum Corporation (BPC) has cleared $578 million worth of outstanding foreign bills in the last three months, a feat it had struggled to achieve over the previous two years.

For more than two years, the government agency’s average outstanding invoices to suppliers have hovered around $200 million, with ships at times forced to wait offshore at Chattogram port, unable to offload due to unpaid fees, leading to increased rental and downtime costs.

Amin Ul Ahsan, chairman of BPC, which is responsible for the import, distribution and marketing of petroleum and petroleum products, believes the rapid debt repayment was the result of strategic shifts that have restored the agency’s image and strengthened its bargaining power with suppliers.

“As of November 7, BPC has no outstanding foreign payments. One of the main reasons is our decision to open letters of credit (letters of credit) through private banks that have adequate foreign exchange reserves,” Amin told The Business Standard yesterday.

Over the past three months, BPC has worked with BRAC Bank, Prime Bank, The City Bank and Islami Bank to open letters of credit, successfully avoiding further debt accumulation. Each corporate letter of credit typically costs approximately $25 million, with 17 to 18 letters of credit issued monthly, representing more than $400 million. This demand cannot be met by state-owned banks alone.

This shift allowed BPC to reduce its dependence on state-owned banks such as Sonali Bank, which during this transition period supplied foreign exchange to meet deferred payments on previously opened letters of credit that were delayed due to foreign exchange shortage.

Due to the shortage, the previous Awami League government directed Bangladesh Bank to provide dollars for import of essential goods including fuel oil, food and chemical fertilizers.

According to the central bank, Bangladesh Bank provided $7.62 billion to commercial banks in FY22, $13.58 billion in FY23 and $12.79 billion in FY24. However, as the country’s foreign exchange reserves dwindled, the central bank was unable to meet the full demand for dollars, leading to a gradual increase in BPC’s debt to foreign suppliers for fuel oil imports.

BPC Chairman Amin said that dependence on Sonali Bank and other public sector banks has been completely reduced. During this period, Sonali and other banks cleared BKK’s foreign exchange charges on previously opened letters of credit due to an increase in remittances.

According to him, the energy adviser also instructed the managing directors of state-owned banks to provide the BPC with the necessary foreign currency.

Amin added that foreign suppliers are now satisfied as BPC has improved timeliness of payments and efficiency of negotiations. BPC intends to sign a six-month oil supply contract in December without any delay in negotiations.

According to him, there are no additional costs for opening letters of credit in private banks. Dhaka Bank and Bank Asia have also shown interest in opening letters of credit and these banks are expected to start operations next week. In addition, BPC plans to open letters of credit with Standard Chartered Bank in January.

Previously, BPC used only four government-owned banks for letters of credit, but now uses nine banks, both government and private. This expansion eased the pressure on banks and simplified the process for BPC.

As the only fuel oil importer in the country, BPC purchases fuel in foreign currency and sells it in local currency. Apart from debt, Bangladesh Biman is the only organization that does not have any fees from fuel sales. BPC opens letters of credit for oil imports in foreign currency in local currency through banks.

Following increased demand for imports following the Covid-19 pandemic and rising global commodity prices due to the Russia-Ukraine war, Bangladesh is facing a currency crisis.

As earnings from exports and remittances did not cover import obligations, foreign exchange reserves continued to decline and foreign exchange rates continued to rise.

To meet market demand, Bangladesh Bank struggled to supply dollars from its reserves. Despite the availability of funds, various organizations were unable to access dollars. As a result, BPC was unable to pay its foreign suppliers on time, turning into a debtor organization.

On October 20, Bangladesh Bank Governor Ahsan Mansoor said in an interview with UNB that the country’s foreign exchange reserves were gradually increasing and stabilizing.

He noted that under the previous government, reserves were reduced by $1.3 billion per month, but now the trend is changing in a positive direction.

“A significant amount has already been paid for fertilizers, electricity and Adani-Chevron dues. In the past two months alone, the central bank has cleared $1.8 billion in debt for fuel and other basic services, reducing the outstanding bill from $2.5 billion to $700. million,” the governor added.