Bangladesh Secures $1bn IsDB Loan for Eastern Refinery expansion
The government has signed a US$1 billion Islamic Development Bank loan for the second unit of Eastern Refinery, reviving a project first planned in 2010 to expand Bangladesh’s limited domestic refining capacity. The announcement comes a day after Prime Minister Tarique Rahman outlined a five point energy plan in Parliament focused on increasing domestic gas supply while adding LNG capacity.
In a Nutshell:
- The government has signed a US$1 billion IsDB loan for Eastern Refinery’s second unit, which will raise annual refining capacity from 1.5 million tonnes to 4.5 million tonnes and reduce reliance on imported finished petroleum products.
- IsDB approved the financing in June, with the agreement signed on September 3 in the presence of Prime Minister Tarique Rahman and IsDB Group President Dr Muhammad Al Jasser.
- Eastern Refinery, established in 1968, is Bangladesh’s only state owned crude oil refinery.
- Plans for the second unit date to 2010 and have repeatedly stalled over financing, project preparation and implementation.
- The project has gone through several financing arrangements, including BPC’s own funding in 2022 and a proposed S Alam Group investment in 2024, before the government secured the current IsDB financing.
Context
Eastern Refinery 2 was first planned in 2010 to increase Bangladesh’s domestic refining capacity. The government approved a Tk13,000 crore project in 2013, but construction never began as financing problems and delays in project preparation, including the feasibility study, kept it from moving forward. BPC revived the project in 2022 with its own financing, but the estimated cost had risen to Tk23,000 crore and work still did not begin. In 2024, S Alam Group proposed a Tk25,000 crore investment, which the Energy Division approved in July. That proposal was abandoned after the fall of Sheikh Hasina’s government in August 2024. The interim government revived ERL 2 again and initially sought foreign financing. The estimated cost reached Tk36,410 crore, but foreign financing did not materialise. The government then moved towards domestic funding before securing the current IsDB financing.
Why it matters
Bangladesh consumes about 7.5 million tonnes of petroleum products a year, while Eastern Refinery currently processes only 1.5 million tonnes. Most refined fuel therefore comes from imports. A larger refinery would let Bangladesh process more imported crude locally instead of relying on finished fuel from abroad. That would reduce one part of the country’s foreign currency spending on energy while increasing the role of domestic refining in meeting fuel demand.
What we think
The US$1 billion financing comes as the government is trying to reduce Bangladesh’s exposure to imported energy. With domestic gas exploration now being pushed alongside more LNG capacity, expanding the country’s ability to refine petroleum locally and slash down the import bills add another piece to that effort.