Eastern Refinery 2 to save Bangladesh $473m every year
The government plans to secure over $1 billion in Islamic Development Bank financing for the Eastern Refinery Limited-2 project, which is expected to save $20 on every barrel of crude oil imported and boost the country's refining capacity.
Highlights:
- ERL-2 expected to save $473 million (Tk5,788 crore) annually
- Refinery to cut crude oil processing costs by $20 per barrel
- Finance panel approves proposal for over $1bn IsDB loan
- Refining capacity to rise from 1.5 million to 4.5 million tonnes a year
- Govt plans one-stage, two-envelope tender to speed up procurement
The implementation of the Eastern Refinery Limited 2 project will save Bangladesh $20 for every barrel of crude oil imported, amounting to $473 million (Tk5,788 crore) annually. To fast-track the commercially viable project, the government plans to invite bids under a one-stage, two-envelope procurement method.
The information emerged at a meeting of the Standing Committee on Non-Concessional Loans, chaired by Finance Minister Amir Khosru Mahmud Chowdhury on 7 July, according to the meeting minutes.
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The committee approved a proposal to secure more than $1 billion in loans from the Islamic Development Bank (IsDB) to finance the project, citing its potential to significantly reduce fuel import costs and strengthen Bangladesh's energy security.
The government noted that financing for fossil fuel-related projects from traditional development partners has become increasingly difficult, making the relatively expensive IsDB loan necessary.
Project implementation began in December last year and is scheduled for completion by November 2030. Once operational, ERL-2 will add 3 million tonnes of annual refining capacity, raising the country's total capacity to 4.5 million tonnes from the current 1.5 million tonnes.
At the meeting, Bangladesh Petroleum Corporation (BPC) Chairman Md Rezanur Rahman said the project's financial internal rate of return is 19.24%, while its economic return rate stands at 23.21%.
"With the proposed loan, Bangladesh is expected to save around $20 per barrel of crude oil, translating into annual savings of approximately $473 million," he said.
Under the IsDB financing proposal, the loan will be disbursed in two phases. The first phase includes $520.6 million in financing along with a $6,00,000 technical assistance grant, followed by $483 million in the second phase.
The 20-year loan carries a five-year grace period and an interest rate of six-month SOFR plus a 1.6% spread. As of July 5, the six-month SOFR stood at 3.846%, bringing the total interest rate to 5.446%.
Economic Relations Division (ERD) Secretary Md Shahriar Kader Siddiky told the meeting that international development partners are reluctant to finance fossil fuel projects. However, Bangladesh's long-standing relationship with the IsDB enabled the country to secure funding for the refinery project.
A deputy governor of Bangladesh Bank said financing the project through foreign borrowing was appropriate given that a substantial portion of the project cost would be incurred in foreign currency, particularly in light of the country's foreign exchange reserve situation.
Energy and Mineral Resources Division Secretary Mohammad Saiful Islam said the project must comply with IsDB procurement guidelines. He noted that adopting the one-stage, two-envelope tendering method would help expedite the procurement process.
Under this method, bidders submit technical and financial proposals in separate sealed envelopes. The technical proposals are evaluated first, and only bidders that qualify at that stage have their financial proposals opened and assessed.
