Clearing Power, Fertiliser Arrears: Govt to issue Tk 26,000cr special bonds

The Finance Division is set to issue special bonds of about Tk 26,000 crore to clear mounting arrears to independent power producers and fertiliser suppliers.

The arrears arose because of the higher prices of fertiliser and fuel in the international market over the last one and a half years. This pushed up the power and agriculture ministries' subsidy requirements.

The bonds will be used as loan repayment to 40 banks on behalf of the power producers and fertiliser suppliers.

The issue of bonds will begin in a couple of days, The Daily Star has learnt from Finance Division officials informed with the proceedings.

The arrears for fertiliser subsidy will be settled first.

The government has outstanding bills amounting to about Tk 12,000 crore to the Bangladesh Chemical Industries Corporation, Bangladesh Agricultural Development Corporation and private fertiliser importers, who have debt to 10 banks, most of which are state-owned.

The process of issuing bonds for settling the bank liabilities of both the power producers and fertiliser importers will be completed in two to three months.

The government has about Tk 20,000 crore in outstanding subsidy bills to as many as 100 independent power producers.

Through the special bond, the Finance Division will repay about Tk 14,000 crore to the IPPs, according to a top official of the Power Division.

The central bank yesterday sat with the officials of the Finance Division and the other officials concerned to fix the interest rate and the maturity period of the special bonds.

The interest on the bonds would be slightly lower than the existing treasury bills and bonds, according to the Finance Division officials.

The banks will receive a fixed interest rate on the bonds and can use them to improve their liquidity holdings, said a top official of the Power Division.

The last time the government resorted to this measure was in fiscal 2012-13; it was to settle an outstanding subsidy to the Bangladesh Petroleum Corporation as part of the conditions of the $987 million loan from the International Monetary Fund.

While the IMF has not explicitly tagged such a condition for the $4.7 billion loan, it has given a ceiling on the budget deficit.

If the arrears are settled from the government's own coffers, there is a possibility of overshooting the budget deficit ceiling set by the Washington-based multilateral lender, according to the finance division officials.