The government on Thursday signed a $1 billion loan agreement with the Islamic Development Bank (IsDB) to finance the modernisation and expansion of Eastern Refinery Limited (ERL).

The agreement was signed at the Bangladesh Secretariat in the presence of Prime Minister Tarique Rahman and IsDB Group President Dr Muhammad Al Jasser, said the prime minister’s Deputy Press Secretary Hasan Shiplu.

The financing will support the construction of ERL’s second refining unit in Chattogram. ERL is Bangladesh’s only state-owned crude oil refinery.

The expansion is considered strategically important for reducing the country’s reliance on imported refined petroleum products and strengthening its long-term energy security. Once completed, the second unit is expected to substantially increase domestic refining capacity and reduce foreign currency expenditure on imported refined fuels.

The long-delayed expansion project has been under consideration for more than a decade. Plans for a second refining unit were first drawn up in 2010, but the project faced repeated delays over financing and implementation.

The IsDB Board of Executive Directors approved the $1 billion financing for the Eastern Refinery modernisation and expansion project at its 367th meeting in Baku, Azerbaijan, in June.

The signing ceremony took place during Dr Al Jasser’s visit to Bangladesh from September 2 to 4. He arrived in Dhaka on Wednesday leading a high-level delegation to participate in official development programmes.

Established in Chattogram in 1968, Eastern Refinery is the country’s sole state-owned crude oil refinery. The expansion is now being pursued as a priority project to boost domestic refining capacity, reduce dependence on imported finished petroleum products and improve Bangladesh’s overall energy security.