Eastern Refinery’s 2nd unit construction cost revised down by Tk4,465cr
Revised proposal to be presented at PEC meeting on 1 Feb
Highlights:
- ERL-2 project cost cut by Tk4,465 crore pre-construction
- Revised project cost set at Tk31,000 crore after review
- Ecnec ordered cost revisions, leading to 12.59% reduction
- Project to be presented to PEC on 1 February
- IsDB interested in providing $1 billion concessional financing
- ERL-2 aims to boost fuel output, reduce import dependence
As part of the interim government's efforts to reduce project expenses, the construction of Eastern Refinery Limited's second unit (ERL-2) has been cut by Tk4,465 crore, even before work has begun.
A revised proposal, a copy obtained by The Business Standard, puts the project's new cost at Tk31,000 crore, down from Tk35,465 crore, and has been submitted to the Planning Commission.
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On 23 December, the Executive Committee of the National Economic Council (Ecnec) approved the project conditionally, asking for a review of various components, senior planning commission officials said.
They said Ecnec had asked to revise detailed engineering, design, construction supervision, commissioning, and associated buildings and infrastructure – to ensure costs were reasonable.
Following the directives, a cost review committee was formed under Amin Ul Ahsan, chairman of Bangladesh Petroleum Corporation (BPC), with officials from ERL and the energy division.
The committee reviewed capital expenditures and subcomponents, including engineering design, pre-commissioning and commissioning, internal roads, plant-related buildings, and other equipment.
After thorough review, the committee recommended a revised total cost of Tk31,000 crore, officials said.
12.59% cost reduction
BPC officials said the reviewed committee made significant reductions in several areas. Construction of plant-related buildings was cut by Tk768.83 crore, reducing the proposed cost to Tk250 crore.
Expenditure on engineering and other equipment fell by Tk1,726 crore from the original Tk8,203.89 crore.
Costs for other infrastructure dropped by Tk1,626 crore to Tk9,506 crore. Other capital expenditures were trimmed by Tk1,364 crore to Tk3,815 crore, and internal road costs fell from Tk288 crore to Tk138 crore.
Planning officials said the revision represents a 12.59% reduction from the Ecnec-approved project cost. Under the June 2022 Government Project Formulation, Processing and Approval Guidelines, any project cost reduction of 10% or more requires presentation to the Project Evaluation Committee (PEC).
The revised project proposal will be presented at a PEC meeting on 1 February.
IsDB offers $1b
Although Ecnec approved the project for self-financing, it also instructed the ministry to explore the possibility of securing concessional foreign loans.
Sources at the Economic Relations Division (ERD) said the Islamic Development Bank (IsDB) has expressed interest in providing $1 billion or more for ERL-2. On 22 December, the IsDB sent an initial proposal for financing, with final approval expected after a mission visits Bangladesh.
Project revival
Eastern Refinery, established in 1968 under French contractor Technip, first planned a second unit in 2010. The government approved Tk13,000 crore in 2013, but no progress was made. In 2022, BPC attempted to proceed with its own funds, raising the estimate to Tk23,000 crore, but work still did not start.
In 2024, S Alam Group offered to construct ERL-2 for Tk25,000 crore, approved on 9 July. The project was suspended in August after the mass uprising that toppled Sheikh Hasina's government.
The interim government revived the plan, which by then was estimated at Tk36,410 crore. Unable to secure foreign loans, it was revised to rely on state funds and BPC resources; the original estimate had been Tk42,974 crore.
4.5m tonnes of crude oil annually
Officials said Eastern Refinery currently meets only 20% of Bangladesh's petroleum demand, the rest imported. ERL-2 will produce Euro-5 gasoline and diesel and upgrade the existing refinery's diesel, motor spirit, and octane to Euro-5 standards.
BPC has completed a new "Installation of Single Point Mooring (SPM) with Double Pipeline" project, enabling transport of up to 4.5 million tonnes of crude oil annually.
Officials project ERL-2 could produce 400,000 tonnes of furnace oil, 60,000 tonnes of LPG, 600,000 tonnes of Euro-5 gasoline, 1.1 million tonnes of Euro-5 diesel, 200,000 tonnes of lube base oil, and 500,000 tonnes of jet fuel yearly.
