The state-owned Eastern Refinery (ERL) was anticipated to build its second unit over the last 12 years. Several attempts failed due to a lack of funding and strong decisions.
Now, the BPC is seeking to tie up with S Alam Group to initiate a joint-venture.
The recent development comes after S Alam Group in October last year sent in a proposal to the Prime Minister's Office to build the refinery on an 80-20 equity basis on the land owned by ERL in Chattogram.
On January 29, the group sent a draft letter of intent to the energy ministry. On February 14, a seven-member committee was formed to carry out the decision about the joint-venture project.
The committee consisted of the managing director of Padma Oil, three representatives from BPC, and three representatives from ERL.
BPC officials claim that the committee is still in the middle of the negotiations. According to the ministry letter, negotiations will end once the technical and financial
analysis, joint venture mode, management plan, and equity component have all been finished.
S. Alam estimates that the refinery will require an investment of approximately $4 billion, or more than Tk 40,000 crore.
The proposed establishment of the second unit of the Eastern Refinery Limited (ERL) through a public-private partnership has sparked intense debate and scrutiny regarding its economic viability, potential risks, and long-term implications for the nation's energy security.
In 2012, plans to build the ERL's second unit were initiated. Because refined petroleum products like gasoline, diesel, and jet fuel are more expensive, the country suffers large losses in foreign exchange.
In the previous attempt, money was allotted by the government in June of last year for the building of Eastern Refinery Limited's (ERL) second unit. Thirty percent came from an investment by the Bangladesh Petroleum Corporation (BPC) and seventy percent came from a loan from the Finance Ministry.
Officials said the project aims to enhance ERL's crude oil refining capacity to 3.0 million MT annually.
The primary target was to complete the project in June 2027, on 30 acres of land near ERL to accommodate the refinery expansion.
At that time, Tk 13,000 crore was the project's estimated cost. Subsequent revisions caused the cost to increase to Tk 23,736 crore in the previous year.
However, since then, the project has been inactive due to financial difficulties; the government has made unsuccessful attempts to obtain foreign loans for the project.
The government is giving S Alam's suggestion to carry out the project through the joint venture serious consideration, even though ERL's original plan has not been shelved yet, officials said.
According to experts, the nation's energy sector is at a turning point because the government must strike a balance between increasing capacity, cost-effectiveness, and privatization in the oil refining sector.
Import dynamics and cost implications:
Bangladesh's reliance on imported refined fuel oil, such as diesel and octane, has incurred substantial costs compared to importing crude oil. The limited capacity of the country's sole state-owned oil refinery, ERL, has necessitated significant imports of refined fuel oil, leading to heightened expenditure of foreign exchange reserves.
Capacity expansion challenges:
Despite escalating demand, ERL's refining capacity has remained stagnant at 1.5 million tons since its inception in 1968. An ambitious initiative to expand oil refining capacity by three million tonnes more, proposed in 2012, has encountered numerous obstacles, primarily attributed to funding constraints and bureaucratic delays. It is still in the darkness.
Government's Privatization Proposal:
The government's plan to establish the second unit of ERL through a public-private partnership underscores its commitment to addressing capacity limitations.
However, the project's estimated costs have ballooned from Tk 13,000 crore to Tk 23,736 crore, and now to Tk 40,000 raising concerns about financial feasibility and transparency in the procurement process.
Investment justification and utilization:
Critics question the government's reluctance to invest in essential infrastructure projects like oil refining, despite substantial revenues generated from fuel oil duties and Bangladesh Petroleum Corporation's (BPC) profits.
Utilizing a portion of these funds for ERL's capacity expansion could yield significant foreign currency savings and mitigate consumer costs.
Privatization risks and policy implications:
The government's decision to involve private companies in oil refining has elicited apprehension regarding potential market manipulation and quality control issues. Previous experiences with private sector participation in energy distribution sectors have underscored the need for stringent regulatory oversight and accountability mechanisms.
Policy critique and future implications:
The government's policy shift towards privatization raises fundamental questions about the reliability and affordability of fuel oil supply. With concerns mounting over the government's ability to regulate private sector operations effectively, stakeholders emphasize the imperative of safeguarding consumer interests and preserving national energy sovereignty.
Energy expert Dr Badrul Imam told Bangladesh Post that the discourse surrounding the country's oil refining sector reflects broader concerns about governance, accountability, and economic sustainability.
As the government navigates the complexities of energy policy, it faces a pivotal choice between embracing privatization as a catalyst for growth and safeguarding public interests against potential risks and uncertainties.
Eastern Refinery Managing Director Engr Md Lokman admits to Bangladesh Post that the delay is still underway. He said, there is a recent development from the Finance Department, a new initiative has been taken regarding the ERL second unit, negotiation process is in progress, MoU yet to be signed. So, still a hefty lot of time to wait to start properly.
He further said, Bangladesh Petroleum Corporation was looking for a private investment as a joint venture initiative. The process turned to a new way when the S Alam Group showed interest and submitted a draft. The government is seriously considering S Alam's proposal of implementing the project under the joint venture.
At present, Bangladesh has a demand for around 70 lakh tonnes of petroleum products, 80 percent of which are imported in refined forms owing to inadequate refining facilities.
