TDS Desk:

Bangladesh’s interim government held its first Executive Committee of the National Economic Council (ECNEC) meeting on September 18 last year. Chief Adviser Dr. Muhammad Yunus declared then, “From now on, we will prioritise small, people-focused projects instead of megaprojects.” Several other advisers subsequently echoed his stance against costly large-scale initiatives. Yet multiple mega-projects secured approval thereafter. Most recently, the committee greenlit the BDT 354.65 billion Eastern Refinery modernisation and expansion scheme during Tuesday’s session.

Questions now arise across various circles over approving such expensive projects after the election schedule was announced. Experts deem pre-election megaproject approvals contentious on both political and administrative grounds. They further note the Eastern Refinery’s estimated cost vastly exceeds global benchmarks for similar oil refineries. Transparency concerns also cloud the project’s planning and budgeting process.

Zambia’s government contracted Chinese firm Fujian Xiangxin Corporation to build a 60,000-barrel-per-day refinery in Ndola last July. The $1.1 billion project — financed through a public-private partnership — will process crude oil shipped via neighbouring Tanzania’s ports to landlocked Zambia’s Industrial Development Corporation (IDC). Its complex includes an LPG bottling unit, bitumen production facilities, lubricant blending plants, and a 130 MW power station.

Angola offers another comparison. Its Cabinda oil refinery began commercial production last September under a deal between UK-based Jemcor and state-owned Sonangol. Initial $473 million spending covered 30,000-barrel diesel and jet fuel production capacity; expanding to 60,000 barrels will require just over $1 billion. Delays, however, had already pushed the 2019-signed project’s start to 2021.

Eastern Refinery Limited (ERL), Bangladesh’s sole oil refinery, is now being upgraded to near-identical capacity. The interim government approved the BDT 354.65 billion project near its final days in office. The cost — roughly $2.89 billion at BDT 122.55 per dollar — is 139 percent higher than Zambia’s and Angola’s comparable projects.

ERL’s current capacity is equivalent to 1.5 million tonnes annually. Bangladesh Petroleum Corporation (BPC) data shows the plant processes 33,000 barrels daily. Modernisation aims to boost capacity to nearly 100,000 barrels by 2030, adding 66,000 barrels per day or 4.5 million tonnes yearly. Given that Zambia built equivalent capacity for $1.1 billion, scrutiny intensifies over the interim government’s last-minute megaproject approval and its disproportionate budget.

The ousted Awami League government first proposed Eastern Refinery-2 in 2012 at a BDT 70 billion estimate. The project implementation never came to fruition even after 15 years of delays. Now the interim government recently approved the same project at BDT 354.65 billion — a 407 percent cost escalation. Though construction has not started, the energy division has already spent BDT 11 billion on consultants and proposals. French firm Technip designed the plan while Indian consultancy Engineers India Limited serves as project management consultant. BPC’s massive payments to both firms drew criticism. Allegations persist that the previous AL government deliberately stalled ERL’s expansion to create private-sector refinery opportunities.

Documents confirm BPC awarded Engineers India Limited the PMC contract on April 19, 2016 without competitive bidding. Officials familiar with the matter indicate former State Minister for Power Nasrul Hamid Bipu played a decisive role in this. Many within the energy sector questioned appointing an Indian firm to such a strategic national project at the time.

Global analysis of recently built refineries processing 6–7 million tonnes annually confirms ERL’s revised budget exceeds international norms. Energy division and BPC officials counter that global benchmarks guided cost estimates, though they acknowledge modernisation requirements and dollar exchange rates increased expenditure.

When contacted, Energy and Mineral Resources Secretary Mohammad Saiful Islam told journalists, “Initial refinery cost estimate was reduced by nearly BDT 70 billion. We are now examining potential further savings of BDT 5 billion. The figure approved at ECNEC remains an estimated spending. We’ll offer an open tender. Then we might secure decreased costs. Mainly the increased dollar exchange rate has inflated costs. But we benchmarked against multiple countries where refinery expenses vary widely. Our calculation followed global standards for modernisation and expansion.”

Energy specialists now question the strategic rationale for such fossil fuel-dependent megaprojects amid global shifts toward renewables. With nations accelerating clean energy transitions, they warn that pouring vast sums into expanding hydrocarbon infrastructure risks becoming a long-term liability.

The Planning Commission shares these concerns, challenging both the refinery’s exorbitant cost and its underlying logic. In formal feedback, it noted that as alternative energy systems emerge worldwide, Bangladesh must scrutinise the justification for complex, high-cost fossil fuel projects. It further demanded clarity on crude oil sourcing, technology suitability given volatile pricing, and detailed breakdowns of the BDT 111.33 billion allocated for physical infrastructure. The commission also questioned the BDT 470 million earmarked for foreign EPC contractors, insisting their necessity and objectives require rigorous justification.

A Planning Commission official, speaking anonymously, told journalists, “This project has lingered for years. Earlier execution would have slashed costs dramatically. The previous government planned foreign loans, but despite negotiations with multiple countries and agencies, funding was never secured.” He added that initial budget proposals were substantially higher before cuts across several sectors.

Energy experts echo these financial worries but extend concerns to utilisation and market viability. They acknowledge Bangladesh’s current fuel shortages necessitate refining capacity. Yet Professor M Tamim, vice-chancellor of Independent University Bangladesh and an energy specialist, cautioned, “While diesel demand drives this project, uncertainty lingers over full utilisation. The refinery will produce only 40 percent diesel; the remainder might be petrol, octane, or jet fuel. We already produce surplus petrol. Without guaranteed markets for other products, risks mount over where to sell processed oil.”

Eastern Refinery’s history compounds doubts. Built in 1968 under French contractor Technip, its long-mooted second unit (ERL-2) saw costs balloon from an initial BDT 70 billion to BDT 130 billion. Failing to secure foreign loan stalled progress. BPC proposed financing the fund in 2022; estimated cost increased to BDT 230 billion but the project still remained unrealised.

Early 2024 brought a private consortium’s BDT 250 billion bid, approved by the former government on July 9. But after the 2024 mass uprising toppled Sheikh Hasina’s administration in August, the project was halted again. The subsequent interim government revived the project at BDT 364.1 billion, proposing BDT 255.01 billion would come from development partners and BDT 109.09 billion from BPC’s reserves.

When foreign loans again proved elusive, officials restructured financing entirely through state funds and BPC reserves, initially budgeting BDT 429.73 billion before cost-cutting. This included BDT 304.99 billion from government funding and BDT 124.74 billion from BPC.

Speaking to journalists, BPC Chairman Amin Ul Ahsan said, “The construction cost of the refinery was benchmarked against expenditures in other countries. Analysis shows that the cost is consistent with similar projects abroad. However, considering the current context, the project cost has increased due to the dollar exchange rate. There will be an international tender for this; it’s not like it would be awarded to anyone directly.”

BPC data shows national petroleum demand reached 6.7 million tonnes in FY 2023-24. ERL supplied just 1.25 million tonnes; imports covered the remaining 5.45 million tonnes. Energy demand has grown 5.5 percent annually in recent years, with BPC projecting 10.79 million tonnes by FY 2029-30. Domestic production, however, will max out at 4.5 million tonnes.