Bangladesh expects to reduce its annual crude oil import costs by about US$473 million (around Tk5,788 crore) once the Eastern Refinery Limited-2 (ERL-2) project becomes operational, according to official meeting records reviewed by The Energy Tribune.
The projected savings were presented at a meeting of the Standing Committee on Non-Concessional Loans, chaired by Finance Minister Amir Khosru Mahmud Chowdhury on 7 July, where officials approved a proposal to secure over US$1 billion in financing from the Islamic Development Bank (IsDB) for the refinery expansion.
Government officials said, "The project is expected to improve Bangladesh’s energy security while reducing the country’s dependence on importing refined petroleum products.”
The expansion project began in December last year and is scheduled for completion in November 2030. Once finished, the refinery will be able to process an additional 3 million tonnes of crude oil annually, increasing Eastern Refinery’s total refining capacity from 1.5 million tonnes to 4.5 million tonnes per year.
During the meeting, Bangladesh Petroleum Corporation (BPC) Chairman Md Rezaur Rahman said the project’s financial internal rate of return (IRR) had been estimated at 19.24 per cent, while its economic IRR stood at 23.21 per cent.
He told the committee that the refinery expansion could generate savings equivalent to around US$20 for every barrel of crude oil imported, resulting in annual savings of approximately US$473 million.
According to the financing proposal, the IsDB loan will be released in two phases. The first tranche includes approximately US$520.6 million in loans alongside a US$600,000 technical assistance grant, while the second tranche will provide a further US$483 million.
The financing package has a repayment period of 20 years, including a five-year grace period. The interest rate will be based on the six-month Secured Overnight Financing Rate (SOFR), with an additional 1.6 percentage points added. Based on the six-month SOFR rate of 3.846 per cent on 5 July, the effective interest rate would be 5.446 per cent.
Officials acknowledged that securing international financing for fossil fuel projects has become increasingly difficult.
Economic Relations Division (ERD) Secretary Md Shahriar Quader Siddiqui told the meeting that Bangladesh had secured the financing thanks to its long-standing partnership with the IsDB, even though many development partners have limited funding for fossil fuel-related investments.
A deputy governor of Bangladesh Bank also supported the financing proposal, noting that much of the project’s expenditure would be in foreign currency. Given pressure on the country’s foreign exchange reserves, external borrowing was considered a practical financing option for a project of this scale.
The meeting also discussed procurement arrangements for the refinery expansion. Energy and Mineral Resources Division Secretary Mohammad Saiful Islam said the project would follow the IsDB’s procurement rules.
Officials agreed that using a one-stage, two-envelope tendering system would help speed up implementation. Under this approach, bidders submit separate technical and financial proposals at the same time. The technical submissions are assessed first, while financial offers are opened only for bidders who successfully meet the technical requirements.
The government believes the procurement method will help accelerate work on one of Bangladesh’s largest energy infrastructure projects while ensuring compliance with the lender’s procurement standards.
Once completed, the ERL-2 project is expected to play a significant role in strengthening the country’s fuel supply chain, lowering refining costs and improving long-term energy resilience.
