Eastern Refinery now to refine crude oil from Europe and Africa too
Planning Commission gives consent to second unit of Eastern Refinery, project cost cut by Tk7,500cr
Highlights:
- ERL-2 will refine crude from Middle East, Europe, Africa
- Project cost reduced to Tk35,465 crore after review
- Design supports various crude types, including heavy grades
- Unnecessary expenses removed to cut overall project cost
- Government will finance project after foreign loans unavailable
- Refining capacity will rise to 45 lakh tonnes yearly
The second unit of Eastern Refinery (ERL-2) will be built with the capacity to refine crude oil sourced not only from the Middle East but also from Europe and Africa. This will reduce the government's dependence on Middle Eastern crude.
In addition, the project cost has been cut by Tk7,500 crore from the initial estimate and fixed at Tk35,465.15 crore with the approval of the Planning Commission.
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At a meeting of the Project Evaluation Committee (PEC) of the Planning Commission yesterday, Dr Md Mokhles ur Rahman, member of the commission's industry and energy division, gave preliminary approval to the proposed "Modernisation and Expansion of Eastern Refinery Limited (ERL)" project. According to commission sources, the project will now be placed before the Executive Committee of the National Economic Council (Ecnec) for final approval.
After the PEC meeting, Energy Division Secretary Mohammad Saiful Islam told TBS that the basic design had been completed using Arabian Light Crude (ALC) and Murban crude as feedstock. However, arrangements will also be made to refine crude imported from various sources including Russia, Norway and Nigeria.
He added that the second unit of Eastern Refinery will be designed to process Russian Urals crude or Nigeria's Brass River crude by separately boiling the fuels before refining.
The project proposal also states that crude-blending facilities will be included to refine heavier grades of crude. For that, the new unit will be equipped with a flexible system capable of processing heavy crude from multiple countries.
On the cost reduction, the energy secretary said the project's expenses had been trimmed by removing all unnecessary components.
Asked which areas were trimmed, he said spending on vehicle purchases, hospitality and other non-essential costs had been removed. Only the strictly necessary components were kept.
According to Planning Commission sources, since development partners did not respond positively, the present government has decided to implement ERL-2 with government funds.
Under the government-financed model, the project cost – initially estimated at Tk42,973.70 crore – has now been brought down to Tk35,465.15 crore. Of this, Tk21,277.59 crore will come from government funds and the remaining Tk14,187.56 crore from Eastern Refinery's own financing.
Once implemented, the country's reliance on imported petroleum products will fall significantly, as the total capacity to refine crude oil will be increased to 45 lakh tonnes per year.
Initiative delayed by financial constraints
The plan to build ERL-2 was taken in 2010, and in 2013 the government approved Tk13,000 crore for the project. But no progress was made. When BPC revived the plan in 2022 through self-financing, the cost rose to Tk23,000 crore, yet work still did not start.
Officials say bureaucratic delays, implementation procedures and financing complications prevented the project from moving forward.
In 2024, the controversial S Alam Group expressed interest in building ERL-2 at a cost of Tk25,000 crore. The Energy Division approved the proposal on 9 July, but the project was halted after the Sheikh Hasina government fell in the face of a mass uprising. The interim government then revived the project and sought foreign loans.
As foreign loans could not be secured, the interim government decided to implement the project using government funds and BPC's own financing.
Initially, the cost was set at Tk42,973.70 crore, with Tk30,499.80 crore from government funds and Tk12,473.90 crore from BPC. Later, after scrutiny by the Planning Commission, the cost was reduced.
M Shamsul Alam, energy adviser to the Consumers Association of Bangladesh (CAB), said that implementing ERL-2 under government ownership had been their long-standing demand. CAB had warned that private or foreign financing would raise project costs, increase fuel prices and heighten the risk of corruption.
He added that CAB welcomes the decision to implement the project with government funds.
He said ensuring transparency in tendering and procurement and implementing the project quickly would mark a major achievement for the government. He also demanded action against those who deliberately delayed the project and inflated costs.
