Decline in interest income drags down govt-run oil firms’ profits

Originally posted in The Business Standard on 02 January 2022

Infograph: TBS

Padma Oil, Meghna Petroleum, and Jamuna Oil – state-owned fuel distributors under the Bangladesh Petroleum Corporation (BPC) – witnessed a drop in profit in the July-September quarter owing to lower interest income from their fixed deposits — an earning from other income segments.

In fiscal 2020-21, Padma Oil – the country’s biggest and oldest firm in this sector, and Meghna Petroleum saw a 121% and 79% year-on-year drop in profit, respectively.

Only Jamuna Oil – the first national oil company which went into operation in the Pakistan era in 1964, posted a 2.44% increase in profit in FY21.

Despite ups and downs in profit, all the three companies declared the same dividend for FY21 as the previous fiscal year.

According to their financial reports, the companies – which have around Tk10,000 crore in fixed deposits in different banks – earn around 80-90% of their total profits from the interest income.

In 2020, the government capped the bank deposit rate at 6%, in a bid to bring down the lending rate to 9%.

Following the move, banks began lowering their deposit interest rates. As a result, the lower interest income has been impacting the profits of the oil companies.

Padma Oil profit falls 121%

In fiscal 2020-21, the profit of Padma Oil Company, which collects, stores and markets fuel, decreased 121% to Tk228.58 crore from Tk272.98 crore a year ago.

Despite the decline in profits, the company, which also produces and markets petroleum products, lubricants and grease, bitumen, liquefied petroleum gas (LPG) and agrochemicals, declared a cash dividend of 125% like the previous fiscal year.

In the first quarter of fiscal 2021-22, its profit dropped 4% to Tk53.69 crore from Tk60.51 crore in the corresponding period of the year before.

Meghna Petroleum profit drops 79%

In the 2020-21 financial year, the profit of Meghna Petroleum, which markets petroleum products, fell 79% to Tk282.14 crore from Tk307.91 crore in the previous year.

In the first quarter of this fiscal year, its profit dropped to Tk65.28 crore from Tk70.78 crore in the same period a year ago.

In the first three months of FY22, the net profit decreased Tk3.89% to Tk65.28 crore compared to Tk70.78 crore in the same period of the previous fiscal year.

Company Secretary of Meghna Petroleum Reza Md Riazuddin said at the end of the year, profits declined because of lower interest income for lower interest rates on deposits.

“Fuel handling has not decreased, so income from this sector is relatively stable. However, due to the decrease in income from deposits, the profit has decreased,” he added.

The company has declared a dividend of 150% or Tk15 per share as in the previous year, despite a decline in net profit at the end of the year.

Jamuna Oil profit rises 2.44%

Despite the decline in fixed deposit income, the profit of Jamuna Oil Company increased by 2.44% in fiscal 2020-21.

However, in the first quarter of the current fiscal year, the company’s profit fell 1.95% to Tk40.55 crore from Tk44.90 crore in the corresponding period of last year.

It had a net profit of Tk201.4 crore in the 2020-21 fiscal year, which was Tk200.16 crore a year ago.

The company declared a 120% cash dividend for its shareholders.

MD Masudul Islam, company secretary of Jamuna Oil, said, “The main reason for the decline in profits is the drop in interest income. Most of the profit comes from fixed deposits. However, it has declined, affecting the company’s overall profits.”