Foreign Financing Fails, Government Decides to Build Eastern Refinery-2 With Local Funds

Foreign loans not met, project cost increases by Tk 6,600 crore in 8 months

Special Correspondent

After failing to secure foreign financing, the interim government has finally decided to implement the second unit of Eastern Refinery Limited (ERL-2) with its own funds.

If this project worth around 43,000 crore taka is implemented, it is expected to strengthen the country’s energy security, reduce dependence on refined oil imports, and save hundreds of millions of dollars in foreign exchange annually.

According to Planning Commission sources, the Energy and Mineral Resources Department has already sent the revised proposal of the ‘Eastern Refinery Limited Modernization and Expansion (ERL-2)’ project to the commission for approval.

Expenditures increased to about 43 thousand crore taka

According to the new proposal, the total cost of the project has been estimated at Tk 42,973 crore. Of this, Tk 30,499 crore will come from the government’s own funds and the remaining Tk 12,473.9 crore will be provided by Bangladesh Petroleum Corporation (BPC). The target has been set to complete the project by June 2030.

Earlier in February this year, the project cost was estimated at Tk 36,410 crore, of which Tk 25,500 crore was expected to be raised from foreign loans. However, due to the failure of foreign financing initiatives, the cost has increased by about Tk 6,600 crore in just 8 months.

A Planning Commission official said, “Due to the continuous failure to attract foreign and private investment and the rising cost of construction, the government has taken a policy decision to proceed with its own financing.”

He added, “If this project could have been started much earlier, the cost would have been much lower. It is a timely decision to start work quickly with our own funding, even if it is late now.”

The interim government sought loans from several development partners in the Middle East, including Saudi Arabia, but no commitments were made. Earlier attempts to implement the project through private investment also failed.

Currently, efforts are underway to include the project in the list of unauthorized new projects of the Annual Development Program (ADP) for the fiscal year 2025-26, so that implementation can begin with government and BPC’s own funding.

“There is no direct foreign funding for this project,” said Muhammad Fawzul Kabir Khan, advisor on power, energy and mineral resources. “Development partners are no longer interested in funding this sector because fossil fuels are harmful to the environment.”

However, he said the government could indirectly finance the project by taking a loan from the Asian Infrastructure Investment Bank (AIIB) as budget support.

According to ERD sources, an application was sent to AIIB on August 13 seeking $1.5 billion in budget support for the current fiscal year and an initial positive response was received.

Energy experts have called the government’s decision to self-finance as ‘realistic and necessary’.

Energy expert Dr. Badrul Imam said, “Establishing a modern refinery in the country is the need of the hour. Foreign loans do not come for free—they have to be repaid with interest. Therefore, if the government has the capacity, self-financing is the best option.”

The country’s only oil refinery, the Eastern Refinery, located in Chittagong, was established in 1968 with the assistance of the French company Technip. Currently, it can refine only 1.5 million tons of crude oil per year, while the national demand is about 7.5 million tons. As a result, a large amount of refined oil has to be imported, which is a major source of foreign exchange expenditure.

Although the plan to build ERL-2 was made in 2010, the project was delayed for a long time due to various complications. In 2024, when S Alam Group proposed to implement the project at Tk 25,000 crore, the Energy Department approved it, but after the change of government in August of that year, the project was suspended. Later, the interim government decided to reactivate the project and go on the path of self-financing.

The Consumers Association of Bangladesh (CAB) welcomed the government’s decision.

CAB’s energy advisor M Shamsul Alam said, “Going for foreign or private financing increases the risk of costs and corruption. The government has moved in the right direction by deciding to implement the project with its own financing.”

He also said, “Transparency must be ensured in tenders and contractor recruitment. If this project is implemented transparently, it will become an exemplary success in the government’s energy sector.”

Once the second unit of the Eastern Refinery is completed, the annual refining capacity will increase from 1.5 million tons to 4.5 million tons. This will reduce dependence on fuel imports, reduce transportation costs, and further strengthen the country’s energy security.

This project will enable the production of Euro-5 standard fuel, which will further advance Bangladesh towards an environmentally friendly and efficient energy system by reducing carbon emissions.