Now govt to self-finance Tk43,000cr Eastern Refinery 2 as foreign funding falls through
The Energy and Mineral Resources Division has submitted a revised proposal for the “Modernisation and Expansion of Eastern Refinery Limited (ERL 2)” project to the Planning Commission for approval, according to commission sources.
Highlights:
- Government to self-fund ERL-2 after foreign loans fell through
- Project cost rises to Tk42,973.7 crore, completion by 2030
- AIIB approached for $1.5 billion budget support assistance
- Experts say self-financing avoids delays, rising costs, foreign debt
- ERL-2 to triple refining capacity, boosting energy security and savings
- CAB welcomes decision, urges transparency and accountability in execution
After months of unsuccessful efforts to secure foreign loans, the government has now decided to implement the long-delayed second unit of the Eastern Refinery Limited (ERL-2) with its own funds – a long-cherished project expected to save the country millions of dollars annually by cutting refined oil imports.
The Energy and Mineral Resources Division has submitted a revised proposal for the "Modernisation and Expansion of Eastern Refinery Limited (ERL 2)" project to the Planning Commission for approval, according to commission sources.
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Under the new proposal, seen by The Business Standard, the project's total cost has been revised up to Tk42,973.70 crore, of which Tk30,499.80 crore will come from the government's own funds and Tk12,473.90 crore from the Bangladesh Petroleum Corporation (BPC). The project is targeted for completion by June 2030.
Cost rises Tk6,600cr after foreign funding fails
In February this year, the Energy Division had sought foreign financing for the project, estimating the total cost at Tk36,410 crore, including Tk25,500.77 crore in foreign loans and Tk10,909.32 crore from the BPC. However, within eight months, the project cost has surged by Tk6,596.7 crore.
Planning Commission officials said repeated failures to attract foreign or private investment and escalating prices forced the government to opt for self-financing. "This project could have been implemented years earlier at a much lower cost," one official noted.
The interim government led by Muhammad Yunus most recently sought financial assistance from Saudi Arabia and other Middle Eastern partners, but no commitments were secured. Earlier, private investors were also approached without success.
Officials said the project has now been placed under the "unapproved new projects" category in the Annual Development Programme (ADP) 2025-26, allowing it to move forward with government and BPC funds – a necessary step for final approval, since it was previously listed as a foreign-funded initiative.
Power and Energy Adviser Muhammad Fouzul Kabir Khan told The Business Standard yesterday, "This project does not have direct foreign financing. Fossil fuels are harmful to the environment, which is why development partners are reluctant to fund this sector."
However, the government may use foreign loans in another way, the adviser said. "In this situation, we will implement the project by taking a loan from the Asian Infrastructure Investment Bank (AIIB) in the form of budget support."
Unlike project-based foreign loans, budget support from external sources allows the government to allocate funds independently according to its priorities.
Officials from the Economic Relations Department (ERD) said the government has approached the AIIB for $1.5 billion in budget support for the current fiscal year. The request, under the Climate Policy-Based Budget Support Programme, was sent to the AIIB on 13 August, and preliminary assurances have been received from the lender.
According to BPC's preliminary project profile, completing ERL 2 will reduce crude import costs and save substantial foreign currency
Experts hail decision to self-fund
Energy experts have welcomed the decision, saying it will prevent further delays and cost escalations tied to foreign financing.
"Building the refinery is essential – relying on imported refined oil is very costly," said Dr Badrul Imam, an energy expert. "If we keep importing refined oil instead of building refining capacity, annual expenses will keep rising. Foreign loans are never free – they must be repaid. If the government has the capacity, using domestic funds is the better option."
A project stalled for over a decade
The ERL, the country's only refinery, was established in 1968 in Chattogram under the supervision of French contractor Technip. It currently refines 1.5 million tonnes of crude oil per year, far short of the national demand of 7.5 million tonnes, forcing dependence on costly refined imports.
Planning for ERL-2 began as early as 2010, and the government approved a Tk13,000 crore project in 2013, but little progress followed. When the BPC proposed self-financing in 2022, the cost had risen to Tk23,000 crore amid bureaucratic bottlenecks and funding uncertainty.
In early 2024, the S Alam Group offered to develop ERL-2 at Tk25,000 crore, and the Energy Division approved the proposal on 7 July. However, the August 2024 mass uprising, which toppled the Awami League government, left the project in limbo. The subsequent interim administration initially sought foreign loans before turning to self-financing.
CAB: 'A Step in the Right Direction'
The Consumers Association of Bangladesh (CAB) has also endorsed the move to fund ERL-2 domestically.
"This has long been a concern," said M Shamsul Alam, CAB's energy adviser. "During the previous government, we warned that pursuing foreign or private funding would inflate project costs and open the door to corruption. Many foreign-funded energy projects in the past 15 years have faced similar complications."
He added, "Now that the government has opted for self-financing, we welcome the decision. However, it must ensure transparency in contractor selection, tendering, and procurement. If implemented efficiently, ERL-2 will be a milestone for Bangladesh's energy security."
Alam further urged that those responsible for previous delays and cost overruns be held accountable, calling such negligence "a punishable offence."
A long-awaited project to boost energy security
The ERL operates as a state-owned subsidiary of the BPC. According to BPC's preliminary project profile, completing ERL 2 will reduce crude import costs and save substantial foreign currency.
The BPC plans to increase Eastern Refinery's refining capacity to 4.5 million tonnes to reduce import dependence. The primary goal is to cut reliance on costly refined fuel imports and strengthen energy security. Additionally, the project will act as a forward linkage for the "Installation of Single Mooring (SPM) with Double Pipeline" project.
ERL 2 will also enable Euro-5 standard fuel production, reducing emissions while improving environmental sustainability and energy efficiency. Officials say this will lower transportation costs, reduce product prices, and make fuel more affordable.
