Govt moves to allow private sector in fuel oil refinery, retailing

In a major policy shift, the government is moving towards ending its fuel oil monopoly as it has drafted outlines to allow the private sector to import and refine crude oils and market their products through their own networks.

Under the initiative, the Bangladesh Petroleum Corporation (BPC) will procure more than half of diesel, petrol, octane, jet fuel, and furnace oil during the initial five years of private sector fuel production entering the market.

The Ministry of Power, Energy, and Mineral Resources has already drafted a policy framework in this regard, a copy of which has been accessed by The Business Standard.

The draft policy states that private refineries will have to sell a minimum of 60% of the total fuel oil outputs – diesel, octane, petrol, jet fuel, furnace oil and by-products- to the BPC at a government-determined price during the initial three years from the commencement.

The remaining 40% of the fuel oil can be sold by the refineries through their own marketing network. If a private refinery faces difficulties selling 40% of its oil due to an insufficient sales network, it has the option to sell any surplus amount to the BPC.

In the subsequent two years, private refineries are permitted to sell up to 50% of their produced oil through their own management. The proportion will be reviewed after the initial five years of the private sector's engagement in the coveted fuel  oil business.   

To finalise the draft, a meeting has been called, which will convene relevant ministries, divisions, and stakeholders. Nasrul Hamid, state minister of the power and energy ministry, will preside over the meeting.

The draft stipulates that private refineries will be able to export their excess products abroad after fulfilling their sales through their marketing network.

They will also be allowed to establish petrol pumps on roads and highways, and in upazilas, and metropolitan areas to retail their produced fuel oil. The government-set retail prices will be maintained at these designated petrol pumps.

When asked if any private company has already sought authorisation from the Energy and Mineral Resources Division for fuel oil import or refinery establishment, the division's Additional Secretary (Operation) Mohammad Zakir Hossain told TBS that he does not have specific details in this regard as he has joined the division very recently.

Nevertheless, a confidential source within the division, who wished to remain anonymous, revealed to TBS that several prominent private sector entities, including Bashundhara Group, Partex Group, TK Group, and Elite Group, have applied to the ministry for approval to establish refineries dedicated to importing and refining crude fuel oil.

"We are very serious about the project. We've acquired 200 acres of land in Sitakundu in Chattogram to set up our oil refinery, which will be the largest in the country" said a senior official of Bashundhara Group.

However, he said the ongoing global and local economic headwinds are delaying the progress of the project. But Bashundhara Group will make the project ready before the government awards it a licence, he noted.

Historically, since the country's independence, the government has been responsible for fuel oil supply management. The state-owned BPC has been the sole player in this field.

The BPC operates as the exclusive oil refining company in Bangladesh, importing crude oil and refining it at the Eastern Refinery, which was established in 1968. This refinery has an annual refining capacity of 15 lakh tonnes, catering to approximately 20% of the nation's overall demand. The remaining 80% of the fuel oil requirement is fulfilled through imports of refined oil.

To bolster its capabilities, the BPC has undertaken a project to establish the second unit of the Eastern Refinery. The project involves an estimated cost of Tk23,000 crore and is anticipated to conclude in 2027. Once completed, this project will raise the BPC's crude oil refining capacity by an additional 30 lakh tonnes.

The energy division underscores the need for enhanced private sector participation in fuel oil supply management. The urgency was felt more than ever before during the energy market volatility caused by the supply disruptions from the pandemic and the war.

While India gained from its combined refinery capacity built over the years with the private sector's involvement, Pakistan also geared up its refining strength taking lessons from the persisting fuel oil crisis.

Officials from the Energy Division affirmed that the move to open the fuel oil refinery and retain it to the private sector has been initiated on the basis of regulatory frameworks outlined in the relevant laws and rules including  Bangladesh Petroleum Corporation Act 2016, and the National Energy Policy of 1996.

Since 2013, the government has refrained from providing subsidies on fuel. This approach will continue from 2026 onwards, as outlined in the terms of the IMF loan.

As part of the ongoing subsidy in the power sector, the Power Division has been compensating the rental and quick rental plants, with a lion's share of last year's Tk30,000 crore subsidy allocation for the power sector spent on this purpose.

Private companies engaging in fuel oil marketing under their management will be required to pay a service charge of Tk1 per litre to the BPC. 

Eligibility criteria for private refiners

The draft policy outlines the mandatory requirements for private entrepreneurs engaging in the energy sector.

It says a willing private enterprise should have a minimum annual turnover of Tk5,000 crore, or its equivalent in US dollars for any 3 out of the last 5 years. It is also required to establish a refinery with a crude fuel oil processing capacity of at least 15 lakh tonnes per year, either under its own ownership or through joint ownership.

The private entrepreneurial organisation and its directors must not have defaulted on loans.

The draft policy also states that a private sector entity needs to have a minimum of 80 acres of land for setting up the refinery. Additionally, a storage facility with a capacity of at least 2 lakh tonnes is required to support refinery operations.

Following the final approval for the refinery setup, the private entrepreneur is required to provide a bank guarantee of Tk250 crore in favour of the BPC as a security deposit before commencing commercial activities.

Post importation of crude oil, the transporter is mandated to either own or manage a fleet of lighterage vessels, coastal tankers, and tankers.