BPC backs S Alam’s proposal to set up Eastern Refinery unit-2

The new unit is expected to be set up under a PPP modality

The Bangladesh Petroleum Corporation (BPC) has endorsed an investment proposal by S Alam Group to construct a second unit for Eastern Refinery Limited, the country’s sole state-run fuel oil refinery, according to officials concerned. 

The BPC, which regulates Eastern Refinery, submitted a review report to the Energy Division on 9 July recommending that S Alam’s proposal be given positive consideration.

A senior energy division official, speaking anonymously, told TBS that once the proposal is approved by Prime Minister Sheikh Hasina, who oversees the energy ministry, a memorandum of understanding (MoU) will be signed between Eastern Refinery and S Alam.

The government has been trying to increase Eastern Refinery’s capacity since 2012 to lessen reliance on imported fuel oil. In FY24, BPC imported approximately 49 lakh tonnes of refined fuel oil and over 13 lakh tonnes of crude oil. 

Established in Patenga, Chattogram in 1968, Eastern Refinery can refine around 15 lakh tonnes of crude oil annually against the country’s current petroleum demand of around 65-70 lakh tonnes.

According to BPC sources, the total consumption/demand for fuel oil increases slightly each year. In FY20, the total fuel oil consumption exceeded 55 lakh tonnes.

“Earlier, a development project proposal for unit-2, jointly funded by the government and BPC, had been prepared and submitted to the Planning Commission but was ultimately not approved,” Eastern Refinery’s Managing Director Md Lokman told TBS on 9 July.

However, after the energy ministry announced a policy for private-sector refineries last November, S Alam Group submitted a joint funding proposal with the government for Eastern Refinery’s unit-2 to the Energy Division in January. The Energy Division then forwarded the proposal to BPC for scrutiny, he added.

According to sources, the BPC formed a seven-member committee to assess S Alam’s proposal. The committee submitted its report to the BPC chairman on 8 July, who then forwarded it to the Energy Division on 9 July.

BPC Chairman Md Amin Ul Ahsan on 10 July told TBS, “The process is still in its early stages, and discussions are ongoing. If the ministry finds S Alam’s proposal suitable, it will proceed to the next phase, though this will take some time due to the substantial investment.

“Once approved, a non-binding MoU will be signed between the parties, followed by a feasibility study,” he said.

Regarding the investment structure, whether it will be a Public-Private Partnership (PPP) or entirely private, the BPC chairman said, “Currently, it appears likely to be a PPP, but the specific details are still under negotiation. It’s premature to speculate on the final arrangement.”

When will the agreement be signed?

Speaking anonymously, a senior official from the Energy Division told TBS that the BPC’s report will be reviewed first by State Minister for Energy Nasrul Hamid, and ultimately by the prime minister, who oversees the energy ministry, for final approval.

“The BPC will proceed according to the Energy Division’s decision. If the proposal is endorsed, a non-binding MoU will be swiftly signed between the Eastern Refinery and S Alam Group, signifying their mutual commitment to establish ERL unit-2,” the official said.

Later, a final agreement will be signed detailing each party’s ownership stake, managerial duties, and profit sharing, said the official, adding that S Alam has proposed an 80% ownership interest in the refinery, as outlined in their documents.

According to sources, Technip Energies, a French company, has completed the design for ERL unit-2, which is projected to have an annual refining capacity of 30 lakh tonnes and the capability to refine various types of crude fuel oil. 

The estimated cost of implementing this project is approximately Tk25,000 crore.

“There is significant investment potential in the fuel oil refining sector. Given the demand for fuel oil in Bangladesh, it is anticipated that such a project could materialise within four to five years. This is due to the importation and refining of crude fuel oil, resulting in savings of Tk11 per litre,” Md Lokman, managing director of Eastern Refinery, said.