The Bangladesh government has approved an interest-free loan of Tk 4,500 crore to Bangladesh Petroleum Corporation (BPC), marking the first such financing in 11 years. The decision aims to support BPC in maintaining uninterrupted fuel supplies amid significant financial pressures caused by a widening gap between global and domestic fuel prices.

The Finance Division conveyed the approval to the Energy and Mineral Resources Division, indicating that the loan will be drawn from the operational loan sector of the current fiscal year's budget. BPC is required to repay the loan in half-yearly installments over five years, following a six-month grace period. A formal loan agreement must be signed between BPC and the Finance Division, and the funds will be restricted to approved fuel-related expenditures. All expenditures must comply with existing financial regulations, including the Public Procurement Act of 2006 and Public Procurement Rules of 2025.

BPC has faced severe liquidity challenges following rising international oil prices, which have not been fully reflected in domestic fuel prices since March. This price adjustment freeze was introduced to shield consumers from external shocks arising from the US-Israel conflict involving Iran, which disrupted global energy supply chains. In September, the government raised fuel prices by Tk 20 per litre, although this increase still falls short of the levels dictated by the automated fuel pricing mechanism under conditions set by the International Monetary Fund’s loan program.

According to State Minister for Energy and Mineral Resources Anindya Islam Amit, diesel prices currently retail at Tk 135 per litre, compared to a projected Tk 205 per litre if the automated mechanism was strictly followed. This indicates a government subsidy of approximately Tk 70 per litre. BPC had historically absorbed losses using reserves accumulated during more profitable years, but the prolonged financial strain has depleted its capacity to continue doing so.

BPC’s financial situation has deteriorated rapidly. While the corporation reported annual profits ranging from Tk 5,000 crore to Tk 9,000 crore between fiscal years 2014-15 and 2024-25—with the exception of FY2021-22, when it posted a Tk 1,983 crore loss related to the Russia-Ukraine war—recent months have seen unprecedented losses. From March to August, amid the Middle East conflict, BPC incurred losses totaling Tk 22,876 crore while settling letters of credit for fuel imports.

In addition to this loan, BPC faces other financial obligations, including a Tk 690 crore repayment due in December for the Single Point Mooring project and scheduled repayments to the International Islamic Trade Finance Corporation.

This development comes amid a broader trend of increased government support for state-owned enterprises. The revised FY2025-26 budget allocated Tk 9,500 crore for loans to such entities, up from Tk 2,234 crore in FY2022-23 and steadily rising over the past three years. Although these funds are technically classified as loans, officials acknowledge that many enterprises struggle to repay them, effectively turning the funds into subsidies and adding to the government’s fiscal strain.

The government has also committed substantial resources to energy subsidies, budgeting Tk 42,000 crore for electricity and liquefied natural gas subsidies in FY2026-27. Nearly Tk 19,000 crore of this allocation had been disbursed in the first quarter of the fiscal year.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, noted that BPC’s financial losses have exhausted the corporation’s balance sheet strength, necessitating government support to ensure energy security and prevent supply disruptions. However, he warned that providing the interest-free loan could exert significant pressure on the government’s cash flow. Hussain highlighted the challenge of financing the loan, which may require either expanding the budget deficit or reducing development expenditures, as adjustments to the operating budget are not feasible. How the government manages this financing will be a critical issue going forward.