Govt now seeks foreign partner to set up 2nd unit of Eastern Refinery Limited

With an aim to enhance Bangladesh's oil refining capacity, the interim government is actively seeking a foreign partner for establishing a second unit of Eastern Refinery Limited (ERL), the country's sole oil refining plant.

In this light, the government has already held discussions with representatives from the UAE, Saudi Arabia, and Japan, according to sources in the Energy Division.

A senior official from the Energy Division, speaking on condition of anonymity, told The Business Standard, "The government is looking for foreign investment in the energy sector, and part of this strategy includes seeking a partner for the ERL-2 project."

The energy adviser will be visiting Chattogram today to evaluate the project site for ERL-2.

Previously, the Awami League government had entered an agreement with the infamous S Alam Group, a prominent private sector conglomerate, to develop ERL's second unit. However, after the interim government took office on 8 August, several top executives of S Alam Group reportedly went into hiding as did the ministers and MPs from Sheikh Hasina's administration.

The group faces numerous allegations, including bank takeovers, money laundering, loan fraud, and financing election campaigns which prompted the interim government to make changes in the management and administration of various institutions that were under the control of the group. 

On 29 August, the Ministry of Energy and Mineral Resources announced the cancellation of the agreement with S Alam Group. Since then, the government has pursued new avenues for the ERL-2 project, discussing potential collaborations with stakeholders from the UAE, Saudi Arabia, and Japan.

Eastern Refinery Limited (ERL) at Chattogram was approved in 1960 and went into operation in 1968, with 35% owned by East Pakistan Industrial Development Corporation (EPIDC), 35% owned by private businessmen led by former Commerce Secretary and ICS officer Abbas Khalili of West Pakistan, and 30% by Burmah Oil Company of the UK.

Now, the state-owned ERL is operating as a subsidiary of Bangladesh Petroleum Corporation (BPC).

Meanwhile, Energy Adviser Muhammad Fouzul Kabir Khan is scheduled to visit Chattogram today to evaluate the project site and discuss implementation strategies for ERL-2. 

"Preliminary discussions have been held with companies from several countries regarding ERL-2," Fouzul Kabir told TBS over the phone on 12 November, adding that they (the government) are considering executing the project through a public-private partnership (PPP) or a joint venture. 

"I will be visiting Chattogram to assess how best to implement the ERL-2 unit," he said on the day.

Efforts to increase the refining capacity of ERL began in 2012 as part of a broader strategy to reduce the country's reliance on imported refined fuel.

In the 2023-24 fiscal year, BPC imported approximately 13 lakh tonnes of crude oil to meet national demand, which currently stands at around 65 to 70 lakh tonnes annually. 

ERL can refine up to 15 lakh tonnes of crude oil per year, which covers only a fraction of the country's needs.

According to BPC sources, the demand for fuel oil in the country has been gradually increasing each year. In the 2019-20 fiscal year, total fuel oil consumption exceeded 55 lakh tonnes.

A senior official from ERL stated that refining imported crude oil locally is more cost-effective, saving approximately Tk11 per litre compared to importing refined fuel. 

Initially, the project was intended to be funded by the government, and a Development Project Proposal (DPP) was submitted to the Planning Commission some time ago. However, due to various reasons, progress on the project stalled.

In November 2023, the Energy Division introduced a policy for the private sector to import, store, process, transport, and market crude oil. Following the policy announcement, S Alam Group expressed interest in partnering with ERL to establish the new refinery and submitted a proposal which the Energy Division reviewed and proceeded to signing an agreement with them.

According to sources, French company Technip has completed the design for ERL-2, proposing an annual refining capacity of 30 lakh tonnes, allowing for multiple types of crude oil to be processed. The project is estimated to cost around Tk25,000 crore.