Special Correspondent, Dhaka:
Bangladesh’s ongoing negotiations with the Islamic Development Bank (IsDB) over a more than $1 billion financing package for the expansion of Eastern Refinery Limited (ERL) reflect a measured effort to move forward with a long-pending energy project while managing financing conditions.
The proposed arrangement, structured under a Shariah-compliant forward lease model, differs from conventional loans. Under this mechanism, the lender will procure project assets and lease them to Bangladesh, with ownership transferred after repayments. This approach links fund disbursement to a series of legal, financial, and environmental conditions, alongside defined timelines for execution.
The ERL-2 project aims to expand Bangladesh’s refining capacity from 1.5 million tonnes to 4.5 million tonnes annually by adding a second unit in Chattogram. The project is expected to contribute to reducing reliance on imported refined fuel and support improvements in fuel quality standards.
Financing terms include pricing linked to the six-month SOFR benchmark with additional spreads, a grace period during construction, and a longer-term repayment schedule. At the same time, semi-annual payments during the construction phase and potential additional costs related to maintenance and insurance may influence the overall financial structure.
Officials involved in the process note that while the conditions are detailed and require timely compliance, they are manageable if implementation proceeds as planned. The six-month deadlines attached to key stages, including agreement signing and initial disbursement, are likely to require close coordination among implementing agencies.
The Bangladesh Petroleum Corporation (BPC) will act as the executing agency, with responsibilities including coordination, procurement under IsDB guidelines, and overall project management. Ensuring readiness on counterpart funding, regulatory approvals, and project oversight will be important to maintain progress.
The project has undergone multiple revisions over the years in terms of cost and financing approach, reflecting broader challenges in mobilizing external funding. In the current context, the IsDB offer represents a viable financing pathway at a time when alternative sources remain limited.
Overall, the negotiations indicate a structured approach to advancing the refinery expansion. Progress will depend on timely fulfillment of conditions, cost management, and effective execution as Bangladesh works to strengthen its refining capacity over the medium term.
