Govt to sign $1b IsDB loan deal for Eastern Refinery expansion tomorrow
The loan was approved at a meeting of the Standing Committee on Non-Concessional Loan (SCNCL), chaired by Finance Minister Amir Khosru Mahmud Chowdhury, on 7 July.
The government is set to sign a $1.0004 billion loan agreement with the Islamic Development Bank (IsDB) tomorrow (3 September) to finance the construction of the second unit of Eastern Refinery Limited (ERL) in Chattogram, a major project aimed at strengthening Bangladesh's energy security.
The agreement will be signed at the Cabinet Division at the Secretariat in the presence of Prime Minister Tarique Rahman, according to officials at the Economic Relations Division (ERD).
IsDB Group Chairman Muhammad Sulaiman Al Jasser is currently visiting Bangladesh to attend the signing ceremony.
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The loan was approved at a meeting of the Standing Committee on Non-Concessional Loan (SCNCL), chaired by Finance Minister Amir Khosru Mahmud Chowdhury, on 7 July.
Although the financing comes with highly non-concessional terms, ERD officials consider the refinery expansion project economically viable and strategically important for the country's energy security.
The IsDB financing will be provided under two separate facilities. The first, Forward Lease 1, will provide $520.59 million, while Forward Lease 2 will provide $483.10 million. An additional $0.6 million technical assistance grant will also be provided under the first facility.
Loan carries 5.45% markup
The loan carries a relatively high financing cost, with the total markup rate calculated at 5.44627%.
According to ERD documents, the calculation was based on the six-month Term Secured Overnight Financing Rate (SOFR) of 3.84627% on 5 July 2026, with a 1.60 percentage-point spread and risk premium added to the benchmark rate.
The total repayment period will be 20 years, including a five-year grace period. The remaining amount will be repaid in semi-annual instalments over 15 years.
The grant elements of Forward Lease 1 and Forward Lease 2 stand at negative 3.12% and negative 3.24%, respectively. As a result, the ERD has classified the financing as "highly non-concessional".
Refining capacity to triple
The Eastern Refinery modernisation and expansion project is expected to significantly increase the country's domestic oil-refining capacity.
ERL currently has an annual refining capacity of 1.5 million tonnes. Once the modernisation and second-unit expansion are completed, the refinery's capacity is expected to increase by another 3 million tonnes to 4.5 million tonnes annually.
This would triple ERL's existing refining capacity and help reduce Bangladesh's dependence on imported refined petroleum products.
The overall cost of the project has been estimated at Tk31,000.57 crore. Of this, Tk18,566.74 crore will come from government financing, while Bangladesh Petroleum Corporation (BPC), the project's implementing agency, will provide Tk12,433.83 crore from its own funds.
The project implementation period has been set from January 2025 to June 2030.
Project cost revised downward
The Eastern Refinery Modernisation and Expansion Project was initially approved conditionally by the Executive Committee of the National Economic Council (Ecnec) on 23 December last year at an estimated cost of Tk35,465 crore.
Following further scrutiny and assessment after the Ecnec approval, the project cost was reduced by Tk4,465 crore to Tk31,000.57 crore.
