Capacity to refine oil not increased in 50 yrs

Bangladesh has to spend extra dollars to import a large amount of diesel every year as the country’s oil refining capacity has not increased in the last 50 years.

Now under pressure, the government is trying to curb imports to save energy.

A project to increase oil refining capacity has not been approved even after 10 years. Implementation of the project could save around $240 million per year.

Now, people become concerned about energy security every time fuel price goes up in the international market.

Speaking to Prothom Alo, two officials of Bangladesh Petroleum Corporation said the project named “Installation of ERL-2” was taken up in 2012 to increase the country's oil refining capacities.

Since then, the development project proposal (DPP) has been amended 10 times. It has increased the project cost by more than Tk 60 billion. The proposal is now at the planning commission.

Eastern Refinery Limited (ERL), the lone oil refinery in the country, was established in 1968. They refine the crude oil brought by BPC.

Later, BPC collects different types of fuel oil, including diesel, from this refinery. ERL’s oil refining capacity is 1.5 million tonnes per year.

The capacity of the new refinery under the ERL-2 project will be 3 million tonnes per year. If the cabinet approves the project, an international tender will be floated to appoint the contractor. The contracting farm has to complete the construction of the refinery within five years of appointment.

The officials of BPC and ERL said, "If the ERL-2 project was implemented in time, we could avoid the current situation. In addition to increasing our oil refining capacity, the project would also increase reserving capacity by three times and the BPC could get the chance to wait and understand the situation instead of importing fuel oil at a high price."

According to the sources in BPC and ERL, French energy agency Technip Energies built the existing refinery. The government gave the approval in principle to give the contract to Technip Energies. BPC signed a deal with Technip Energies in January 2017 to develop the technical design. Technip took three years to complete the design.

At the same time a negotiation was going on between Technip and the BPC. Technip wanted to hand over the responsibilities of the refinery after its construction before the launching. However, BPC’s consultant agency has not accepted the condition. Apart from that, BPC had objections regarding some other conditions of Technip. Due to this, Technip Energies withdrew them from the project.

Speaking to Prothom Alo on Wednesday, Md Lokman, managing director of ERL, said, “We wanted to give the contract to Technip as they constructed the existing refinery. But they wanted excessive facilities which we couldn’t accept to protect the interest of the country. The project has been delayed as they left. We will float the tender as soon as it gets the approval of the cabinet.”

The total cost of the ERL-2 project stands at around Tk 197.69 billion after 10 amendments of the DPP. At first the project cost was estimated at Tk 130 billion which will return within four years and nine months of its launching, as per the DPP.

But right from the start the project has been procrastinated due to investment related issues. Despite efforts, it was not possible to get foreign funding for the project. After that BPC waited a few years for government funding. Now they have decided to implement the project with their own funding.

Two officials of BPC and ERL told Prothom Alo that the proposed project was halted over a tussle between the energy division and BPC. Now it has moved to the planning commission. The project will be placed in the Executive Committee of the National Economic Council (ECNEC) for approval very soon.

BPC sold 6.5 million tonnes of fuel oil in the last fiscal. Of this, 4.6 million tonnes were diesel. Some 600,000 tonnes of diesel were produced from the only refinery of the country. The rest was imported.

According to sources in BPC and ERL, some 11 dollars per barrel (158.99 litres) could be saved if diesel was produced in the country by refining crude oil imported from abroad.

It means that some 7 taka per litre of diesel can be saved as per the current transaction rate of US dollar (Tk 94). However, an official of ERL said, “If we could refine oil in the country, some 15 taka could be saved from per litre diesel considering its price in the international market.”

According to the DPP, the ERL meets 20 per cent of the demand of petroleum products in the country. The demand of fuel is increasing every year in the country and it can surpass 8 million tonnes by 2026-27 fiscal.

"If we want to meet that demand by importing from abroad, it will create a pressure on the country’s economy. As a result, it will not be possible to save foreign currency. And the energy security of the country will be at stake. Therefore, the ERL-2 should be implemented soon," the official added preferring not to be named.

The fuel oil is produced by refining the imported crude oil and the condensate we get as by-products of gas in local gas fields. Import of fuel oil like diesel and furnace oil is increasing every year. As a result, the government has to bear an extra cost of TK 25 billion every year.

The BPC has been under pressure for the last few months due to the rise in the price of fuel oil in the international market. The price of fuel oil has been increased by 42 to 51 per cent on 5 August.

A senior official of BPC told Prothom Alo that the demand of petrol could be met locally. Some 40 per cent of the total demand of octane is produced in the country and the rest is imported. However, diesel and furnace oil are being imported the most.

"If a new refinery is constructed, it will be possible to meet the demand of diesel locally and we will have the chance to export petrol," the official added.

Speaking to Prothom Alo, M Tamim, special assistant of the former caretaker government’s chief advisor, said, “Once there was interest at private levels for the construction of a fuel oil refinery in the country. They may have some influence behind not increasing the government’s capacity to refine oil. However, the capacity to refine oil has not increased in the government or private sectors. If the ERL-2 project was implemented, it would have been a great help in tackling the current situation.”

*This report appeared on the print and online version of Prothom Alo and has been rewritten in English by Ashish Basu