The government is planning to borrow $1 billion (about 12,300 crore taka) from the Islamic Development Bank (IsDB) to expand the capacity of Eastern Refinery Limited (ERL), accepting relatively expensive financing as Bangladesh seeks to strengthen energy security amid tightening access to concessional foreign loans.
The proposed loan, equivalent to about 12,300 crore taka, would finance the expansion of the country's only crude oil refinery in Chattogram.
According to officials, the proposal has been endorsed by the government's Non-Concessional Loan Committee, chaired by Finance and Planning Adviser Amir Khasru Mahmud Chowdhury, following discussions between the Economic Relations Division (ERD) and the IsDB.
The financing would be provided under the IsDB's lease financing model at the Secured Overnight Financing Rate (SOFR) plus a 1.60 percentage-point spread. With SOFR currently around 5 percent, the effective interest rate would stand at roughly 6.6 percent, rising to nearly 7 percent depending on market movements.
The borrowing cost is significantly higher than the concessional loans Bangladesh has traditionally secured from multilateral development partners.
Senior ERD officials told Daily Waadaa that the government had agreed in principle to pursue the relatively expensive financing because concessional funding options have narrowed sharply in recent years, forcing Bangladesh to increasingly rely on market-based foreign borrowing.
"The country's energy security has become a strategic priority," an ERD official said. "Although the financing is costly, expanding Eastern Refinery is considered essential to reduce long-term dependence on imported refined petroleum products."
Eastern Refinery, commissioned in 1968, is Bangladesh's only crude oil refinery. It currently processes about 15 lakh tonnes of crude oil annually, meeting only around 20 percent of the country's petroleum demand.
The remaining requirement is met through imports of refined petroleum products, leaving Bangladesh exposed to international price volatility and persistent pressure on foreign exchange reserves.
The expansion project would raise the refinery's annual processing capacity to 30 lakh tonnes, enabling Bangladesh to refine a much larger share of its imported crude domestically.
Officials also expect the upgraded facility to produce cleaner Euro-5 standard fuels while reducing dependence on imported diesel, petrol and octane.
The move comes after repeated fuel supply pressures highlighted structural weaknesses in Bangladesh's energy sector. Over the past few years, foreign currency shortages, volatility in global oil markets and disruptions to crude shipments have periodically strained fuel supplies and sharply increased the country's energy import bill.
Energy experts have long argued that expanding domestic refining capacity is one of the country's most important long-term investments to improve energy security and cushion against external shocks.
Talking with Waadaa, a senior ERD official who preferred anonymity acknowledged that the proposed financing is “substantially more expensive” than Bangladesh's traditional development loans.
However, the official argued that with “concessional financing” becoming increasingly scarce, delaying the refinery expansion would carry “greater economic and strategic costs.”
—