Govt, S Alam to team up to build second oil refinery

The state-owned Eastern Refinery (ERL) is likely to build its long-planned second unit in partnership with Chattogram-based conglomerate S Alam Group after previous attempts to expand the country's oil refining capacity fell through because of a lack of financing.

The 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.

Then on February 5, the energy division wrote to the Bangladesh Petroleum Corporation, the parent company of ERL, informing it about the decision to build the second unit under a joint venture with the S Alam Group.

It also asked the government agency to form a negotiation committee.

Subsequently, a seven-member committee -- comprising three BPC officials, three ERL officials and the managing director of Padma Oil -- was formed on February 14 to take the decision forward. Md Khalid Ahmed, BPC's director for operations, will head the committee.

The committee will have a month to complete the negotiation, the BPC officials said.

Negotiations will be completed after completing the technical and financial analysis, the modality of the joint venture, the management strategy and the equity portion, the ministry letter read.

"It's still at a very primary stage," said BPC Chairman ABM Azad.

As per S Alam's estimate, about $4 billion (over Tk 40,000 crore) of investment will be needed to build the refinery, said Subrata Kumar Bhowmick, an executive director of S Alam Group.

"We have submitted the proposal and the roadmap to set up the refinery. The government has agreed as well and constituted a committee," he added.

According to the initial proposal by the ERL, the second unit was supposed to have the capacity to refine 30 lakh tonnes of oil.

S Alam said the refinery will have the capacity to refine up to 50 lakh tonnes of oil.

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.

Refined petroleum products such as diesel, petrol and jet fuel cost more, meaning the country is losing huge amounts of foreign currency.

ERL's bid to build the second unit in keeping with the growing demand for petroleum products as a result of stable economic growth was conceived in 2012.

The estimated cost for the project was Tk 13,000 crore then.

But the project has been in limbo since then due to funding issues, The Daily Star has learnt from BPC officials informed with the proceedings.

The government had tried to secure foreign loans for the project but its attempts did not succeed.

This prompted the government to decide to build the refinery on its own, with 70 percent of the project cost coming from the ministry in the form of loans to the BPC. The rest of the amount will come from BPC.

ERL Managing Director Md Lokman said he heard about the decision but has not received any formal letter.

"We sent our final proposal to the energy division long ago for it to place before the Ecnec," he said.

Following the subsequent revisions, the cost went up to Tk 23,736 crore last year.

According to the latest development project proposal, the finance division had agreed to spend Tk 16,142 crore and the BPC agreed to spend Tk 7,100 crore.

It was yet to be decided how the rest of Tk 493 crore would be mobilised.

Although ERL's original plan has not been abandoned yet, the government is seriously considering S Alam's proposal of implementing the project under the joint venture.

The government's recent stance comes on the heels of its decision in November last year to open the fuel oil market to the private sector.

Bashundhara Oil and Gas Company has already expressed interest in becoming the first private refinery owner.