IsDB gives Bangladesh $1B to expand oil refining capacity
Funding will triple capacity at Bangladesh’s only state-owned crude oil refinery, cutting reliance on costly refined-fuel imports and strengthening energy security
DHAKA, Bangladesh (MNTV) — Bangladesh is set to sharply expand its ability to refine crude oil at home under a $1 billion financing deal with the Islamic Development Bank, reducing its reliance on imported finished fuels and potentially saving hundreds of millions of dollars in foreign exchange each year.
The project will triple the capacity of the state-owned Eastern Refinery from 1.5 million to 4.5 million metric tons a year, allowing Bangladesh to process a much larger share of the fuel it consumes instead of importing diesel, gasoline and other petroleum products in finished form.
According to the Islamic Development Bank (IsDB), the $1.004 billion financing agreement was signed with the Bangladesh government in Dhaka on Sept. 3 during a visit by IsDB Group Chairman Muhammad Al Jasser.
The bank estimates that the expansion could save Bangladesh about $394 million in foreign exchange annually by replacing some imports of finished petroleum products with crude oil that can be refined domestically.
Bangladesh currently depends heavily on imported petroleum products to meet the needs of its transport, agriculture, power and industrial sectors.
Eastern Refinery, the country’s only crude oil refinery, has operated with an annual capacity of about 1.5 million metric tons for decades, leaving much of domestic demand to be met through imports of ready-to-use fuels.
That dependence makes Bangladesh vulnerable to sharp increases in international oil prices and disruptions in global supply chains. It also puts pressure on the country’s foreign exchange reserves because petroleum imports must largely be paid for in dollars.
Expanding domestic refining will not end Bangladesh’s dependence on foreign energy because the country will still need to import crude oil.
But buying crude and processing more of it at home would reduce its reliance on generally more expensive finished petroleum products and give the country greater control over its fuel supply.
The expanded refinery is expected to produce 15 petroleum products, including diesel, gasoline, jet fuel, liquefied petroleum gas and furnace oil. IsDB estimates that the project could lower the cost of major petroleum products by about 5%.
The modernization will also allow Eastern Refinery to produce petroleum products meeting Euro 5 standards, replacing its older refining technology and helping Bangladesh move toward cleaner fuels with lower levels of harmful pollutants.
Bangladesh Petroleum Corporation will implement the project under the Energy and Mineral Resources Division. The overall expansion is expected to cost about $2.5 billion, with Bangladesh financing the portion not covered by IsDB.
The IsDB financing, however, is not a low-cost development loan. Bangladesh’s Economic Relations Division has classified it as highly non-concessional, with a 20-year repayment period that includes a five-year grace period.
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