Fertiliser import falters as Saudi banks cancel Sonali Bank LCs

Highlights

• Total urea demand 34 lakh tonnes
• Local production target 10.50 lakh tonnes
• Production disrupted due to gas shortage
• Import target from the Middle East 17.17 lakh tonnes
• Another 5 lakh tonnes to be imported to meet production shortfall
• BCIC concerned over a urea supply crunch in current and upcoming seasons

The cancellation of four Sonali Bank LCs by two Saudi banks in a row caused a fertiliser import schedule disruption when more imports were planned after urea production dropped due to the current gas crisis and ongoing factory repairs.

The Bangladesh Chemical Industries Corporation (BCIC), fearing a possible supply crunch of urea in the current and ongoing Boro season, has written to the Bangladesh Bank governor, expressing concern over the cancellation of letter of credits (LCs), said a BCIC director, who wished to remain anonymous.

BCIC sources say that Saudi Arabia's Bank Al-Bilad and Bank Al Jazeera cancelled the LCs after the state-owned bank failed to pay within the stipulated time, pushing back the import of four lots, each of 30,000 tonnes. Later the BCIC opened two of the four LCs through the Janata Bank and Agrani Bank.

The BCIC director said, "The schedule of urea import is fixed. Our supply at the farmer level depends on it. Any problem in import will cause supply to the field level."

Subhash Chandra Das, Chief Financial Officer (CFO), Sonali Bank limited, told TBS that "The Bangladesh Bank provides paymentsfor government LCs. The central bank is now providing dollars on a priority basis, but banks in Saudi Arabia are asking for payment before the due date."

He said, "Saudi banks want a confirmed LC, under which the payment transaction goes through beforehand. In this case the confirmation proving bank will raise the fund and we will have to pay interest for that. When we tried a suitable add confirmation client, we found they are asking the dollar rate of Bangladesh Bank, not market rate. Lack of coordination between the two parties in this matter led to the LCs being cancelled."

BCIC says if the fertiliser supply is not normalised at this point, it will not be possible to maintain the normal supply of urea fertiliser during the current season and the upcoming peak season (boro season).

Zakia Sultana, secretary of the Ministry of Industries, told The Bus, "We processed the import (of cancelled LCs) through Janata Bank, Rupali Bank and Krishi Bank as Sonali Bank had a problem. We have written a letter to the Governor of Bangladesh Bank asking them to take measures so that such problems do not happen again.

MdAbdus Salam CEO and managing director of Janata Bank said, "We regularly import government imports and daily necessities including BCIC order. Fertilisers have been recently imported from Saudi Arabia and it did not require add confirmation." 

The government is scheduled to import fertiliser from Saudi Arabia under a G2G deal in a total of 16 lots (30,000 tonnes each), three of which arrived before the next four got stuck over the delay in LC payment. For the fourth and fifth lot, ships stood ready for loading for seven days, for which the government had to pay a demurrage of $20,000 per day.  

BCIC Chairman Shah MdImdadulHaque highlighted the fertiliser crisis in the letter to the central bank governor.

"The import of fertilisersas per schedule has become uncertain. In October 2,40,000tonnes of fertiliser import are scheduled. Besides, there is a plan to import 1,80,000tonnes more for any emergency situation," he said.

"Unless the LC related issues are solved, the sourcing of fertiliser within the specified period will be extremely difficult," he said, adding that the BCIC is worried about urea supply crunch for not only September and October but for the entire fiscal year 2022-23 as well.

According to BCIC data, the demand for urea this year is 26 lakh tonnes and 8 lakh tonnes as emergency stock, totalling 34 lakh tonnes.

One of the four BCIC factories, through which the BCIC targeted producing 10.50 lakh tonnes, has remained shut for over three months amid the gas shortage, while production in the remaining three is not at a suitable level due to continuous mechanical failures. This situation prompted the BCIC to approve the additional import of 5 lakh tonnes of urea. BCIC's original import target was 17.70 lakh tonnes.

Of the 17.70 lakh tonnes, 11.70 lakh tonnes are to be imported from Saudi Arabia. Apart from this, there are plans to import 6 lakh tonnes of urea from Kafco. An additional 5 lakh tonnes of urea will also be imported from Saudi Arabia and other countries in the Middle East.

According to the BCIC, demand for urea fertiliser was 1,96,925 lakh tonnes in September, 1,45,440 lakh tonnes in October, 2,24,339 lakh tonnes in November and 3,01,395 lakh tonnes in December – totalling 8,68,099 lakh tonnes.

BCIC Chairman Shah MdImdadulHaque expressed concern and said without an uninterrupted G2G import schedule it will not be possible to meet demand until December.