S Alam Group dropped from oil refinery project
The interim government has decided in principle not to sign the deal with Chattogram-based conglomerate S Alam Group to construct the second unit of the state-owned Eastern Refinery Limited following the changed political situation
Established in Chattogram in 1968, Eastern Refinery, the lone refinery in the country, has a capacity of processing 15 trillion tonnes of fuel oil annually, and the Bangladesh Petroleum Corporation (BPC) under the Ministry of Energy and Mineral Resources operates the facility. A project titled ‘Installation of ERP-2’ was undertaken in 2012 to build a second unit with a capacity of processing 30 trillion tonnes of fuel oil annually. About USD 240 million can be saved once the project is complete.
Regarding the dropping of the S Alam Group from the project, several officials of BPC and Eastern Refinery said S Alam Group was involved in the project at the directives of the former prime minister’s office. The conglomerate wanted 51 per cent of shares through investment, but the BPC opined 60 per cent of shares for the government. Later, a decision was taken to sign a memorandum of understanding without finalising the partnership issues, followed by sending the draft MoU to the law ministry for vetting in the last week of July. Had the change of the government not taken place, the signing of the deal could not have been prevented in any way, according to the officials.
The Power Division did not also agree to the refinery construction in partnership with S Alam Group. Two responsible persons of Power Davison told Prothom Alo a revocation of the deal was proposed in the changed situation, and new way out will be fixed now for the implementation of the project.
The secretary to the Ministry of Energy and Mineral Resources and the Power Division, Md Nurul Alam told Prothom Alo the new refinery unit construction project will be implemented with their own funds and contractor firms will be appointed by calling open tender to implement the project.
Prothom Alo could not reach S Alam Group chairman Mohammad Saiful Alam and executive director Subrata Kumar Bhowmick for comment as their mobile phones were switched off.
On February 5, the BPC in a letter to the Power Division said a decision had been taken to implement the ERL-2 project on a public-private partnership (PPP) between Eastern Refinery and S Alam Group. BPC, Eastern Refinery and S Alam Group will negotiate on everything before signing the MoU. Eastern Refinery and S Alam Group will be from a special purpose vehicle (SPV) company once the negotiation is completed.
As per the proposal, S Alam Group would build another refinery with a capacity of 30-50 trillion tonnes in the refinery area of the Eastern Refinery. The BPC formed a committee on 15 February this year to submit a final report after scrutinising the draft of the MoU proposed by S Alam Group.
Before that, S Alam Group sent a proposal to Power Division on 29 January to implement the RL-2 project jointly. The letter also mentioned the Power Division has already received instructions from the Prime Minister’s Office on the matter. A draft MoU was also sent along with the letter.
French company Technip constructed the existing unit of the Eastern Refinery and the government approved in principle to build the new unit by them. A cost of about Tk 197.69 billion was estimated for the ERL-2 project. The development project proposal mentioned the cost will be recovered in 4 years and 9 months after the new unit goes into operation.
However, funding could not be ascertained. As the domestic refinery capacity did not increase, more diesels were imported and the government needed to spend additional dollars every year.
The BPC sells 60-65 trillion tonnes of fuel oil annually in the country and 46 trillion tonnes of that is diesel, but the lone state-run refinery provides only 600,000 tonnes of diesel every year and the remaining portions are imported.
According to BPC and Eastern Refinery, demand for fuel oil may cross 80 trillion tonnes in the 2026-27 fiscal, and if the demand is met through import it will create pressure on the country’s economy; foreign currency would not be saved, and fuel security will face risk. It is possible to save more than Tk 15 per litre of diesel if it is refined locally, which is why people concerned think it is necessary to implement the ERL-2 project as soon as possible.
An official of the BPC told Prothom Alo that demand of petrol is met locally; 40 per cent of octane is produced locally and the remaining portion is imported, while diesel mostly used for the transportation sector and furnace oil used for power plants are largely imported. If a new unit of the Eastern Refinery is set up, a major portion of demand for diesel can be fulfilled locally and there will also be opportunities to export petrol.
Regarding this, former energy-related special assistant to the chief advisor of the caretaker government M Tamim told Prothom Alo it was unfair to sign an agreement with S Alam Group and the interim government has made a good decision by cancelling it. If the project is self-financed, it will be more economical, and the new refinery unit should be built as soon as possible.
*This report appeared in the online edition of Prothom Alo and has been rewritten in English by Hasanul Banna