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The Bangladesh government has secured around $1 billion in financing from the Islamic Development Bank (IsDB) for the construction of the second unit of Eastern Refinery, aimed at boosting the country’s petroleum refining capacity.
A bilateral loan agreement was signed with the Islamic Development Bank on Thursday in the presence of Prime Minister Tarique Rahman and IsDB Group Chairman Dr Muhammad Al Jasser.
The prime minister’s Deputy Press Secretary Mostafa Zulfikar Hasan confirmed the development to the media.
The financing will support the modernisation and expansion of Eastern Refinery Limited in Chattogram. The IsDB’s Board of Executive Directors approved $1.004 billion in financing for the project in June.
Once implemented, the project will nearly triple the country’s petroleum refining capacity. Eastern Refinery currently has an annual crude oil refining capacity of 1.5 million tonnes.
The second unit will add another 3 million tonnes of refining capacity, raising the total to 4.5 million tonnes annually.
According to documents from the Economic Relations Division (ERD), the financing will come in two packages—$520.59 million under Forward Lease-1 and $483.10 million under Forward Lease-2. The first package also includes a $600,000 technical assistance grant.
The loan will have a 20-year maturity, including a five-year grace period. The remaining amount will be repaid in semi-annual instalments over 15 years.
ERD documents noted that the cost of financing is relatively higher than prevailing international market rates. Based on a six-month secured overnight financing rate of 3.84627% on July 5, 2026, the total markup rate was set at 5.44627%, including a 1.60% spread and risk premium.
The revised cost of the Eastern Refinery modernisation and expansion project has been estimated at around Tk31,000 crore. Of this, the government will provide Tk18,566.74 crore, while Bangladesh Petroleum Corporation (BPC) will contribute Tk12,433.83 crore from its own funds.
The project implementation period has been set from January 2025 to June 2030.
The Executive Committee of the National Economic Council (ECNEC) had earlier given in-principle approval to the project on December 23 last year at an estimated cost of Tk35,465 crore. Following scrutiny, the project cost was reduced to around Tk31,000 crore.
Once the second unit becomes operational, Bangladesh’s dependence on imported refined petroleum products is expected to decline significantly. Eastern Refinery currently meets around 20% of the country’s petroleum demand.
The project is expected to enable production of Euro-5 standard petrol and diesel. According to project documents, the refinery will also have the capacity to produce around 400,000 tonnes of furnace oil, 60,000 tonnes of LPG, 600,000 tonnes of Euro-5 petrol, 1.1 million tonnes of Euro-5 diesel, 200,000 tonnes of lube base oil and 500,000 tonnes of jet fuel annually.
The increased refining capacity is expected to reduce foreign exchange expenditure on refined fuel imports and strengthen stability in the country’s fuel supply system. It will also provide greater energy security during disruptions in global crude and refined fuel supplies.
Plans to build the second unit of Eastern Refinery have been in place for years. An initiative was taken in 2010, but the project could not be implemented for various reasons. In 2013, the government approved around Tk13,000 crore for the project, but work did not begin. The cost and implementation plan were subsequently revised several times.
In 2022, BPC took steps to revive the project with its own financing. Later, efforts were made to secure foreign financing. The project is now being financed through government funds, BPC’s own resources and an IsDB loan.
Eastern Refinery, the country’s only state-owned oil refinery, began commercial production in Chattogram in 1968. It currently has an annual crude oil refining capacity of around 1.5 million tonnes.
In April this year, the refinery’s production remained suspended for 26 days after its crude oil stock ran out. Production resumed on May 8 after a fresh supply of crude arrived. The incident highlighted the risks posed by the country’s dependence on imported fuel.
Stakeholders say implementation of the second unit will not only increase Bangladesh’s refining capacity but also reduce import costs and pressure on foreign exchange reserves, while strengthening the country’s energy security in the long term.