Foreign Funding Attempts Fail: Govt to self-finance Tk43,000cr ERL-2

Staff reporter :

After failing to secure foreign funds, the government has decided to go solo on the long-delayed Eastern Refinery Unit-2 project, opting to finance the Tk43,000 crore expansion from its own resources to cut costly fuel imports.

The Energy and Mineral Resources Division has submitted a revised proposal to the Planning Commission, raising the project cost to Tk42,973.70 crore. Of the total outlay, Tk30,499.80 crore will come directly from the government, while BPC will provide Tk12,473.90 crore. The project aims to be completed by June 2030.

Earlier this year, the project was budgeted at Tk36,410 crore with expectations of Tk25,500 crore in foreign loans.

However, repeated efforts to secure financing—from Saudi Arabia, other Gulf partners, and private investors—brought no commitments, officials said. As a result, the project cost has climbed by over Tk6,500 crore within eight months.

Planning Commission officials acknowledged delays and rising global costs, noting that reliance on foreign funding prolonged the project. It has now been placed under the “unapproved new projects” category in the upcoming ADP, clearing the way for approval under a domestic financing structure.

Power and Energy Adviser Muhammad Fouzul Kabir Khan said development agencies are hesitant to fund fossil fuel projects amid climate concerns.

However, he mentioned that the government is seeking budgetary support from the Asian Infrastructure Investment Bank (AIIB), rather than project-specific financing.

The Economic Relations Department recently requested $1.5 billion from AIIB under a climate policy-based support programme and has received early positive indications.

Energy experts say the shift to domestic financing may prove beneficial. “Continuing to import refined petroleum is extremely costly,” said energy analyst Dr Badrul Imam.

“If the government has the fiscal capacity, investing local funds is wiser than waiting for foreign loans that come with stringent terms.”

Established in 1968, Eastern Refinery currently processes 1.5 million tonnes of crude annually—far below national demand of about 7.5 million tonnes—forcing reliance on expensive refined imports.

Plans for ERL-2 date back to 2010, but bureaucratic hurdles, rising costs, and shifting political priorities stalled progress. A recent proposal from S Alam Group was also halted after political changes in 2024.

Consumer rights groups have welcomed the government’s shift. CAB energy adviser M Shamsul Alam said self-financing would help curb corruption risks and prevent further escalation in costs, but stressed the importance of transparency in contractor selection and procurement.
Once operational, ERL-2 is expected to triple refining capacity to 4.5 million tonnes, support Euro-5 fuel production, reduce fuel import bills, and strengthen long-term energy security.