$1b loan deal with IsDB to be signed on Sept 3

CHATTOGRAM, Aug 23: The upcoming $1 billion loan agreement for the expansion of Eastern Refinery Limited (ERL) is set to be signed on September 3 with the Islamic Development Bank (IsDB). The IsDB President will arrive in Dhaka on September 2.  

The agreement will be signed in Dhaka at the presence of the IsDB President and the Bangladesh Prime Minister Tareque Rahman, according to Bangladesh Petroleum Corporation (BPC) sources.  

With the expansion of the ERL, oil refining capacity will enhance from 1.5 million tonnes to 4.5 million tonnes annually.  The implementation of the ERL second project will save Bangladesh $20 for every barrel of crude oil imported, amounting to $473 million (Tk5,788 crore) annually. To fast-track the commercially viable project, the government plans to invite bids under a one-stage, two-en velope procurement method  chaired by Finance Minister Amir Khosru Mahmud Chowdhury on 7 July.

Earlier, the Standing Committee on Non-Concessional Loans, approved a proposal to secure more than $1 billion in loans from the IsDB to finance the project, citing its potential to significantly reduce fuel import costs and strengthen Bangladesh's energy security.

The government noted that financing for fossil fuel-related projects from traditional development partners has become increasingly difficult, making the relatively expensive IsDB loan necessary.  The project is scheduled for completion by November 2030. Once operational, ERL-2 will add 3 million tonnes of annual refining capacity.

The project's financial internal rate of return is 19.24%, while its economic return rate stands at 23.21%.

Under the IsDB financing proposal, the loan will be disbursed in two phases. The first phase includes $520.6 million along with a $6,00,000 technical assistance grant, followed by $483 million in the second phase.The 20-year loan carries a five-year grace period and an interest rate of six-month SOFR plus a 1.6% spread. 

The government took up a plan to set up a second unit of the ERL in 2010. In this connection, the government approved Tk13,000 crore in 2013, but no progress was made so far. In 2022, BPC attempted to proceed with its own funds, raising the estimate to Tk23,000 crore, but work still did not start.

In 2024, S Alam Group offered to construct ERL-2 for Tk25,000 crore. The project was suspended in August of the same year after the mass uprising that toppled Sheikh Hasina's government.  After construction, the ERL-2 unit will produce Euro-5 gasoline and diesel and upgrade the existing refinery's diesel, motor spirit, and octane to Euro-5 standards.

The ERL-2 could produce 400,000 tonnes of furnace oil, 60,000 tonnes of LPG, 600,000 tonnes of Euro-5 gasoline, 1.1 million tonnes of Euro-5 diesel, 200,000 tonnes of lube base oil and 500,000 tonnes of jet fuel annually.

The authorities revised a proposal, putting the project's new cost at Tk31,000 crore, down from Tk35,465 crore, and has been submitted to the Planning Commission. Consequently, on 23 December in 2025 last, the ECNEC approved the project conditionally.  The ECNEC had asked to revise detailed engineering, design, construction supervision, commissioning, and associated buildings and infrastructure - to ensure costs were reasonable.