BPC plans to set up new oil refinery

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Nizam Ahmed
The state-owned Bangladesh Petroleum Corporation (BPC) has opted to set up a new oil refinery in the country, as the authorities concerned have recently cancelled a private public partnership (PPP) project for expansion of the Eastern Refinery Limited (ERL), officials said Thursday.
"The option for a new oil refinery has been mooted, as the authorities have finally cancelled a joint-venture proposal for expansion of ERL," a senior official of BPC told the FE.
ERL, set up at Patenga near the Chittagong Port in 1968, is a subsidiary of BPC, the sole importer and distributor of petroleum products and crude oil in the country and a corporate wing of the Ministry of Power, Energy and Mineral Resources.
The IEL Consortium of Germany and its Bangladeshi associate the Orion Group submitted the joint-venture proposal in July last year to undertake a $1.3 billion (Tk 67 billion) project to treble the production capacity of ERL from 1.5 million tonnes to 4.5 million tonnes per year.
"The proposal has finally been cancelled on September 13, as the relevant firms have failed to engage a genuine financial guarantor after winning the deal," said the BPC official.
With the cancellation of the proposal the project for balancing, modernisation, rehabilitation and expansion (BMRE) of ERL has also been cancelled by the energy ministry.
"The project has also been cancelled, because it won't be feasible to undertake BMRE for the refinery, set up in late 1960s."
The authorities will soon take up a plan to set up a new oil refinery with adequate production capacity, the official said.
As the project has been delayed for nearly two years even before start of work, the actual estimated cost for the BMRE might cross $2.0 billion, if a re-estimation is undertaken now, experts said.
However, to meet the growing needs for boosting oil refining capacity in the country BPC has been exploring new avenues to attract foreign investment and expertise in its mulled projects, officials said.
The corporation has been in interaction with the Kuwait Petroleum International (KPI) to build an oil refinery in the country under joint venture.
KPI, the international arm of the state-owned Kuwait Petroleum Corporation (KPC), is now conducting a feasibility study on construction of the refinery project in Bangladesh, with 5.0 million tonne yearly capacity.
Earlier, the ERL expansion proposal was cancelled, as an inquiry of the energy ministry conducted with the help of the Bangladesh High Commission in UK revealed that the General Development Bank Plc UK, which was said to be the guarantor of the German Consortium, has been found to be a non-banking entity.
"The General Development Bank is not a bank at all. It may not have the capability to finance $1.3 billion for the project," said the BPC official, quoting an excerpt of the report of the High Commission.
The country needs a new refinery to meet most of its annual demand of up to 6.0 million tonnes, by refining imported crude oil locally.
Besides, an augmentation in oil refining capacity has become more essential due to recent discovery of oil in the country's two gas-fields, following 3D surveys by the Bangladesh Petroleum Exploration and Production Company Ltd (Bapex), a subsidiary of the state-owned Petrobangla.
Bapex recently discovered 137 million barrels of new oil resources in Kailashtila and Sylhet fields. At least 40 per cent of these oil resources, amounting to 55 million barrels or equivalent to 7.50 million tonnes of crude oil, is recoverable.
BPC will need some five years to refine all the recoverable crude with the existing refinery, if extracted as planned.
The corporation expects to import about 5.9 million tonnes of crude oil and refined products combined in the present fiscal year (2012-13), up by 11.3 per cent from 5.3 million tonnes in the previous fiscal.