Govt misses out on refining oil cheaply
Bangladesh is missing out on refining imported crude oil cheaply and saving valuable foreign currencies as it uses a plant that is more than half a century old and has failed to set up a new unit in a decade.
The economic life of the first plant of state-run Eastern Refinery Ltd (ERL), a subsidiary of Bangladesh Petroleum Corporation (BPC), was estimated at 20-25 years when it was commissioned in 1968.
Today, the only unit refines about 12 lakh tonnes of crude oil annually, which is less than a fifth of the total demand of 65 lakh tonnes for finished petroleum products. The rest of the finished products are imported directly.
ERL, which has an annual capacity to refine 15 lakh tonnes of crude oil, is the only company that makes finished petroleum products locally.
The processing cost of the 53-year-old plant has risen 89 per cent in the last decade, according to the annual report of the company for 2018-19.
The cost was Tk 630 per tonne in 2009 and it surged to Tk 1,190 per tonne in 2019.
ERL spent Tk 80.16 crore to refine 12.71 lakh tonnes of crude oil in the fiscal year of 2009-10.
The cost of refining 11.66 lakh tonnes was Tk 138.85 crore in FY2018-19.
The expenditure rose mainly because of repairing and replacing equipment of the plant, said an ERL official.
ERL carries out regular repairs and maintenance to keep the plant up and running.
As the economic life of the plant is over, the maintenance cost has risen.
There is also a drop in the quality of oil refined, and the current unit is not environment-friendly, said the official, preferring not to be named.
Eastern Refinery took the initiative to launch a second plant to refine 30 lakh tonnes crude oil in 2010. But the project has seen little progress.
It has revised the development of the project proposal (DPP) of the new plant 11 times.
The initial cost of the project has already increased to around Tk 20,000 crore from Tk 13,000 crore. The cost may increase further as the project is still in the process of being revised.
According to industry people, the new plant would have saved the country $18 to $22 per tonne. This means, had the new plant been commissioned, Bangladesh could have saved $6.6 million annually.
"It should never take 11 years to prepare a DPP even if the project is too big," said M Shamsul Alam, energy adviser of the Consumers Association of Bangladesh.
He alleged that officials of ERL and BPC were procrastinating in building the new plant as it was easy to embezzle money on repairing and maintaining an expired one.
"The reliance on the 53-year-old plant proves how far the energy sector is lagging behind. No country is dependent on a single plant to refine oil considering the high risk involved in the sector," Prof Alam said.
If there were two or three plants, the country would have saved a lot of foreign currency, and the cost of energy would have been lower, he added.
Eastern Refinery produces 15 types of petroleum products, including gas oil (diesel), jet fuel, motor gasoline, furnace oil, and marine fuel.
WHAT OFFICIALS SAY
Md Lokman, managing director of ERL, defended the old plant, saying it was still useful.
"We replace important equipment regularly to avoid risk. Even though the plant is 53 years old, it is still working well."
The second plant has been delayed due to uncertainties over funding and the screening of various aspects of the project, according to Lokman.
"It is in the final stage of approval. If implemented, it would be possible to refine two-thirds of the fuel consumed," he added.
Md Anisur Rahman, senior secretary of the energy and mineral resources division, attributed the delay to the numerous queries raised by the consultancy firm.
"There were more than 500 queries on various issues from the consultancy company. It took time to respond to these questions," he said.
In April 2016, ERL appointed Engineers India Ltd as a consultant to install the second unit.
In 2017, the government signed a deal with French company Technip to prepare the engineering design of the plant. The company also built the first plant five decades ago.
The project is scheduled to be presented at a regular meeting of the Executive Committee of the National Economic Council this month, said BPC Chairman Abu Bakar Siddique earlier.
"Once approved, the work on the project can start quickly."
The new plant will have 10 processing units where liquefied petroleum gas, gasoline, diesel, petrol, kerosene, bitumen, jet fuel, and sulfur will be produced.