Govt loaning $2.3b from ITFC to fight energy crisis

The government is going to take a $2.3 billion loan from the International Islamic Trade Finance Corporation (ITFC) to tackle the ongoing energy and forex reserve crisis.

The loan will be used to keep the imports of refined fuel oil, gas and liquified natural gas (LNG) steady, and to reduce the pressure on forex reserves, according to an Energy and Mineral Resources Division letter recently sent to government agencies concerned, including the Finance Division.

ITFC, a member of the Islamic Development Bank (IsDB) Group, has already agreed to provide the monetary support.

The government had initially inked an annual financing plan for fiscal year 2023-24 with the government of Bangladesh for $1.4 billion at the ITFC Headquarters in Jeddah during the recent visit of a Bangladeshi delegation recently. The fund will be used for facilitating the importation of petroleum products by Bangladesh Petroleum Corporation (BPC) for the period between July 2023 till June 2024.

However, according to the letter, this loan alone will not be able to tackle the crises. Hence, an additional $900 million loan will be taken from the multinational lender to ensure that the situation does not take any undesired turn.

Sources said of the initially inked $1.4 billion deal, ITFC agreed to provide $1 billion on the best effort basis and $400 million on contingency basis. The tenure of the loan is six months from the date of the corresponding disbursement and the rate of interest is 2.00 per cent, including administrative fee annually.

The Standing Committee on Non-Concessional Loan of the Economic Relations Division has already nodded to the loan proposal.

Since its inception in 2008, the ITFC has approved over $16 billion for the government of Bangladesh to support the country’s energy security. The loan amount is repaid through the state-owned Janata Bank and Agrani Bank.

Additional $900m loan

In view of the long-standing strategic development partnership and operational advantages, BPC has proposed to take another $400 million loan in addition to the $1.4 billion in continuation of the existing agreement with ITFC to finance the import of refined fuel oil. In addition, Bangladesh Oil, Gas and Mineral Resources Corporation (Petrobangla) has requested a loan facility of $500 million from ITFC to finance LNG imports to meet the country’s growing gas demand.

The Ministry of Power, Energy and Mineral Resources has sought the consent and opinion of the Finance Division, Economic Relations Division and Bangladesh Bank in this regard.

The ministry has also told these three agencies that the existing agreement with ITFC may be amended or a supplementary agreement may be penned on the same terms for the additional loans.

According to the letter, the Bangladesh Bank may be required to participate as co-financier in the proposed loan.

Bangladesh is currently grappling with a dire energy crisis as production on many of its coal-fired power plants have been limited or halted due to a coal shortage as the local suppliers failed to deliver coal due to unpaid dues. The crisis intensified further after the Payra Thermal Power Plant closed down two of its units earlier this month. Yet, the government will have to pay Tk 7.66 crore capacity charge for every day the units remain closed.