The long-awaited second refinery project is set for a major overhaul as the Energy and Mineral Resources Division (EMRD) moves to rein in costs that had raised eyebrows at the highest levels of government.
A revised proposal now seeks to cut Tk 44.64 billion, or 12.59 per cent, from the project's price tag after the Executive Committee of the National Economic Council (ECNEC) approved the plan in December with strict conditions on cost rationalisation.
The reworked plan, which will be reviewed today (Sunday) by the Planning Commission's Project Evaluation Committee (PEC), aims to deliver the same refining capacity while eliminating inflated estimates across several major components-particularly construction and engineering costs that, officials say, were far above prevailing norms.
The EMRD has proposed restructuring Eastern Refinery Limited's (ERL) second refinery project, cutting the estimated cost to Tk 310.01 billion from the Tk 354.65 billion approved by ECNEC in December last.
According to the proposal, costs for five major components would fall by Tk 56.24 billion, while allocations for contingencies, intended to cover inflation or additional components, would rise by Tk 16.0 billion.
"The project was presented at the ECNEC meeting on December 23 with extraordinarily high costs for some components, including building construction at four times the normal rate," said a senior Planning Division official.
"The meeting approved the proposal with conditions, including a requirement that costs be justified based on the recommendations of a review committee."
He added that although the allocation for building construction has been retained in the revised proposal, the cost has been reduced by 75.46 per cent, with scope for further cuts following detailed scrutiny.
Officials said the originally approved project allocated Tk 10.19 billion for constructing 20,527 square metres of buildings, equivalent to Tk 0.50 million per square metre.
The revised proposal lowers this to Tk 2.50 billion, or Tk 0.12 million per square metre, saving Tk 7.69 billion.
Anisuzzaman Bhuiya Rana, former general secretary of the Real Estate and Housing Association of Bangladesh (REHAB), said the original proposal left significant room for corruption in building construction and argued that the revised estimates still appeared inflated.
Converted into square feet, the cost has been reduced from Tk 46,000 to Tk 11,000 per square foot.
He questioned why a government project would require construction costs of Tk 11,000 per square foot even without land acquisition, noting that private developers in Dhaka purchase land and sell flats at around Tk 5,000 per square foot while still making profits.
Officials said the Economic Relations Division (ERD) had explored foreign financing options to expand ERL's refining capacity by an additional 3 million metric tonnes per annum from the current 1.5 million.
However, the EMRD has proposed implementing the project entirely through domestic financing.
ECNEC approved the project on the condition that costs for several components, including detailed engineering design, construction supervision, commissioning charges, and associated buildings and plant facilities, be reduced where justified.
"Costs will be reduced where appropriate, and the restructured project proposal will be submitted to the Ministry of Planning through the relevant sector of the Planning Commission by the Energy and Mineral Resources Division," the ECNEC meeting minutes stated.
To ensure quality during implementation, a technical committee comprising government and private-sector experts will be formed.
The committee tasked with justifying the project costs recommended that construction costs be set at Tk 64,600 per square metre, including VAT and other expenses, in line with the Public Works Department's rate schedule.
"Previously, the project cost was estimated based on recommendations from the consulting firm Engineers India Limited (EIL)," the committee noted.
It also recommended a substantial reduction in internal road construction costs. The earlier estimate of Tk 2.89 billion has been revised down to Tk 1.50 billion, cutting Tk 1.38 billion to reflect updated rates and realistic project needs.
The cost of engineering and other equipment has been reduced from Tk 82.04 billion to Tk 64.78 billion, a saving of Tk 17.26 billion. This reflects the removal of certain vendor costs, a reduction in spare-parts coverage from two years to one year, and revised VAT calculations.
For other installations, the cost has been lowered from Tk 111.33 billion to Tk 95.06 billion, a reduction of Tk 16.26 billion, based on practical adjustments and VAT considerations.
Other capital costs have been reduced from Tk 51.80 billion to Tk 38.15 billion, cutting Tk 13.64 billion by optimising supervision costs, EPC contractor overheads, and engineering design elements.
The cost reductions form part of a broader effort to rationalise the project while maintaining its scope and quality, including site preparation, civil and mechanical construction, 20 processing units, 18 utility and off-site units, and ancillary works, the proposal said.
Once completed, the project will process 3 million metric tonnes of crude oil annually and produce Euro-5 compliant fuels, strengthening national energy security and reducing dependence on imported petroleum products.
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