Bangladesh faces $117,309 in penalties over urea import payment, LC delays

The government is facing $1,17,309 in demurrage and fines over two separate incidents involving delays in letters of credit (LC) clearance and payments for importing urea fertiliser from the United Arab Emirates and Qatar.

A 15-day delay in LC confirmation for importing fertiliser from UAE's Fertiglobe under a government-to-government (G2G) contract has left a cargo ship idle at Abu Dhabi's Ruwais Port, resulting in a $107,024 demurrage charge, according to the minutes of a recent inter-ministerial meeting.

Additionally, Qatar's Muntajat is seeking $10,285 in fines for an eight-day payment delay on a fertiliser shipment under another G2G contract.

Md Moniruzzaman, joint secretary and director general (commercial) of Bangladesh Chemical Industries Corporation (BCIC), revealed this information during an 11 September meeting on urea fertiliser production, import, distribution, and storage.

The meeting, chaired by BCIC Chairman Saidur Rahman, included representatives from the Ministry of Finance, the Bangladesh Bank, the Energy Division, the Ministry of Agriculture, and state-owned banks.

The agriculture ministry expressed concerns about a potential shortage of urea fertiliser starting in the upcoming peak Boro season, starting in December.

Bangladesh has an annual urea demand of about 30 lakh tonnes, primarily fulfilled through imports.

According to the BCIC, the projected demand for urea until March 2025 is 18 lakh tonnes, with approximately 5 lakh tonnes currently in stock.

During the meeting, BCIC officials warned that delays in LC establishment, confirmation and payment would disrupt fertiliser imports. To address the crisis, they requested urgent gas supply to the closed fertiliser factories alongside imports.

However, Energy Division officials informed the BCIC that supplying gas to the fertiliser factories is not feasible now due to disruptions in LNG imports caused by financial constraints.

Bangladesh Bank officials at the meeting said forex reserves would not be used for these purposes to meet IMF loan conditions, meaning banks must finance fertiliser imports from their own sources.

The BCIC, which is responsible for the supply of urea – the primary fertiliser used by farmers, is preparing to issue an international tender as there are no other options to meet urea demand for the upcoming Boro season.

Due to the ongoing dollar crisis, Bangladesh is incurring penalty interests for late payments on gas and fuel oil import bills.

The government is also facing delays in paying for both urea and non-urea fertiliser imports. However, officials noted that this is the first time penalties have been imposed over delayed fertiliser import payments.

BCIC DG Moniruzzaman said there were delays in payments for the 13th and 14th lots from Qatar's Muntajat.

The 15th lot payment, due on 17 July, was settled by Janata Bank on 25 July due to delays in receiving dollars from the Bangladesh Bank. This 8-day delay resulted in a $10,285 interest demand from the Qatar bank, threatening future fertiliser imports from Muntajat if unresolved, he said.

The BCIC DG said LC confirmation is necessary for G2G fertiliser imports. The first two lots from Dubai's Fertiglobe were imported smoothly due to timely confirmation. However, Mashreq Bank of Abu Dhabi later hesitated in confirming the LC.

At the BCIC's request, Fertiglobe agreed to supply fertiliser without LC confirmation, stipulating that each new shipment would be loaded only after payment for the previous lot. Under this arrangement, the BCIC imported the next nine lots of fertilisers, he said.

Moniruzzaman explained that the ship for the 9th lot arrived at Ruwais Port on 21 July but due to political unrest in Bangladesh, communication with Fertiglobe was temporarily disrupted, causing the UAE company to halt shipments without LC confirmation.

After 15 days, Fertiglobe loaded the fertiliser once the LC from Mashreq Bank was confirmed, with additional guarantees from Sonali Bank, but with a $107,024 demurrage fee.

Bangladesh paid the bill for the 9th lot from the UAE five days after the scheduled deadline, he mentioned.

Moniruzzaman further noted that the BCIC wrote to Sonali Bank on 1 September to establish an LC for 30,000 tonnes of fertiliser (11th lot) from Fertiglobe. 

However, Sonali Bank was initially reluctant to open the LC. After intervention from government officials, the LC was opened on 4 September, but it is still awaiting confirmation from the foreign bank.

Bangladesh also delayed payment by 15 days for $7.354 million for the 15th lot of fertilisers imported from Sabic, Saudi Arabia. The payment, originally due on 5 August, was made on 20 August, said the BCIC DG.

Fears of urea crisis in upcoming peak season

At the meeting, Moniruzzaman expressed the BCIC's deep concern about fertiliser stock for the upcoming peak season.

He noted that almost all fertiliser factories under the BCIC remain closed due to a lack of gas. Letters have been sent to the ministry requesting gas supply, and the issue has been discussed in various government forums, but no progress has been made so far.

The agriculture ministry has projected a demand of 32 lakh tonnes of urea for the current financial year, with a safety stock of 5 lakh tonnes.

In FY24, local factories produced only 6.46 lakh tonnes of fertiliser due to gas supply issues, falling short of the 10 lakh tonnes target. This production met the fertiliser demand for the July-September mini-peak Aman season.

In the meeting, the BCIC chairman said the current fertiliser stock in the country is 4.35 lakh tonnes, while the demand for October and November is 4 lakh tonnes. 

The peak Boro season begins in December, with a total fertiliser demand of about 14 lakh tonnes from December to March, resulting in a total urea fertiliser demand of 18 lakh tonnes until next March, he added.