Oil tankers loaded with Kuwaiti oil have refused to deliver their cargo to the Bangladesh Petroleum Corporation (BPC) unless foreign banks guarantee letters of credit (L/Cs) opened by the state-owned oil importer.

Even though the Emir of Kuwait recently agreed to supply oil to Bangladesh on preferential terms, concerns about BPC's poor liquidity are apparently too grave for the National Bank of Kuwait (NBK) to extend credit, except on the safest of terms.

Oil hike

Against a backdrop of soaring oil prices it appears BPC has now reached the point where unprecedented liquidity problems have pushed it close to bankruptcy and it is struggling to pay its bills.

This is despite preferential deferred payment financing facilities provided to BPC by Kuwait, the main source of oil imports for Bangladesh.

L/Cs refused

Tankers with Kuwaiti oil bound for BPC have reportedly been told to wait in outer anchorage off Chittagong for several days because of the delay in L/C payments.

The NBK has apparently refused to accept L/Cs worth US$750 million meant to secure the deferred payment facility unless foreign banks guarantee the L/Cs.

Foreign banks in Bangladesh however have been unwilling to provide such guarantees because, in common with NBK, they are concerned about BPC's lack of liquidity.

Reluctant banks

Bangladesh is reportedly lobbying Kuwaiti officials to accept L/Cs from BPC opened by Bangladeshi public sector banks such as Janata Bank and the Agrani Bank.

The public sector banks however say they have had bad experiences in past dealings BPC and do not want to open L/Cs for the state oil importer.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.