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Bangladesh struggling to pay for fuel due to dollar shortage, letters show

(Reuters) - Bangladesh is struggling to pay for imported fuel because of a dollar shortage, letters from the state petroleum firm show, with it warning of an "alarming decrease" in fuel reserves.

It owes more than $300 MM to six overseas companies, some of which have either sent fewer cargoes than scheduled or threatened to halt supplies, according to one of the two letters from the Bangladesh Petroleum Corp (BPC) reviewed by Reuters.

The country is already grappling with power cuts that have hurt its exports-oriented garments industry. Separately, the body responsible for generating electricity and distribution also warned it had to delay payments due to the currency crunch.

BPC, which controls the import and marketing of fuel in the country, has asked the government to permit domestic commercial banks to settle money owed to India in rupees.

When asked about the letters, the central bank told Reuters it was acting rationally and prioritizing dollar disbursal "given the context of the global economy".

"Due to a shortage of foreign currency/dollars in the domestic market and the central bank not meeting demand for U.S. dollars, commercial banks are unable to pay for imports on time," BPC told the Power Ministry in a May 9 letter.

That followed a warning in a letter in April which said: "If it is not possible to import fuel according to the import schedule prepared for May, supply may be disrupted throughout the country with an alarming decrease in fuel reserves."

Neither the ministry nor BPC responded to telephone calls to seek comment.

Bangladesh's dollar reserves have shrunk more than a third since Russia's invasion of Ukraine in February last year to stand at a seven-year low of $30.18 B.

The country of nearly 170 million people has already had to secure a loan of $4.7 B from the IMF this year as it deals with higher costs of imported fuel and food.

'Maintaining' reserves

The central bank said it had given BPC $5 B this fiscal year and $2 B to Petrobangla for LNG imports. Commercial banks also had more than $3 B that could be used by importers to open letters of credit.

"We are managing everything rationally," Bangladesh Bank spokesperson Mezbaul Haque said. "We need to prioritize given the context of the global economy. Despite all ups and down, we are maintaining foreign reserves of more than $30 B."

BPC imports 500,000 tons of refined oil and 100,000 tons of crude oil every month.

Creditors included Unipec, the trading arm of China's state-owned Sinopec, Vitol, ENOC, Indian Oil Corp Ltd (IOC), PetroChina and Indonesia's BSP, BPC's April letter said.

BPC will have to pay $41.1 MM this year for diesel to India's Numaligarh Refinery, majority owned by Oil India, while IOC is owed $147.2 MM for diesel and jet fuel, the May letter showed.

BPC asked the government to allow nationalized commercial banks to settle payments to Indian companies in rupees.

In September, Reuters reported that State Bank of India had asked exporters to avoid settling deals with Bangladesh in dollars and other major currencies as its reserves fell, favoring instead the taka and rupee currencies.

For years, Bangladesh's $416-B economy has been one of the world's fastest growing but is facing many challenges now.

In a sign of further pain for the government, state-owned Bangladesh Power Development Board (BPDB), responsible for generating electricity and distribution, has delayed the payment of more than $1.5 B to private power producers by months, also blaming the shortage of dollars.

"This delay is bankrupting many local power companies," said Faisal Khan, president of the Bangladesh Independent Power Producers Association, which represents more than 50 members.

"If this is not remedied, electricity supply will be hampered."

Shameem Hasan, spokesman for the BPDB, said: "This is an ongoing process. We're trying to clear the payment as early as possible but like others we're facing also dollar shortage."

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