Why is Bangladesh's oil refinery not getting foreign investment?

The plan to set up Eastern Refinery Limited (ERL) at Chattogram was approved in 1960 and went into operation in 1968, with 35% owned by East Pakistan Industrial Development Corporation (EPIDC), 35% owned by private businessmen led by former Commerce Secretary and ICS officer Abbas Khalili of West Pakistan, and 30% by Burmah Oil Company of the UK. A petroleum expert, Syed Shamsul Huda (later President of BCCB), was appointed as resident director to run, operate, and manage the refinery.

The plant was supplied and commissioned by Technip-France, based on Iranian Agha Jari crude oil from Iran, and has the capacity to refine 1.5 million tonnes of crude per year.

Due to the disruption of crude supply from Iran, the plant was modified to process crude from Saudi Arabia and Abu Dhabi in the late 1970s. The plant then went through conversion and upgrading in the mid-'90s for diversified products.

Due to a possible increase in demand for petroleum products in the next 30 years for East Pakistan, EPIDC invited international tenders to set up an oil refinery at Mongla in 1971. Due to the 1971 War of Liberation, the project was shelved.

In line with fast development of the newly liberated country, the demand for petroleum products increased a few fold, reaching 7.5 million tonnes today.

Prime Minister Sheikh Hasina is seriously interested in having long-term energy security for the country and wants implementation of the oil refinery, LNG and petrochemical facilities earliest. 

The Ministry of Energy took several initiatives to go for modernisation and expansion of ERL during the last two decades, but experts feel that its technology is too old and cannot interface with modern efficient refineries. In fact they have again now wanted to expand ERL facilities at the present site, which may not be technically feasible as well as location population-wise too congested.

The best option could be to set-up a 20 million tonne capacity modern oil refinery based on western technology at Matarbari, where large VLCC crude carriers can unload crude more safely.

Bangladesh Petroleum Corporation (BPC) is learnt to have approached Kuwait, Saudi Arabia and China, to supply and participate in the project under joint-venture or on public-private partnership (PPP) basis.

Kuwait Oil Company showed interest to set up an oil refinery under JV with BPC/ERL in 2016. It was urged to expedite implementation of the project in November 2022. But no progress could be achieved, resulting in KOC going ahead with investment in a large refinery in Vietnam.

China also showed interest in the refinery. Their choice was to build the plant under loan from China, but BPC was reluctant about it considering the huge burden of loan.

In 2017, the then Bangladesh Ambassador to Saudi Arabia, Golam Moshi, took an active role in persuading the CEO of Aramco, the world's largest trillion-dollar company, to come to Bangladesh to invest. 

After close persuasion, the Saudi Arabian state-owned petroleum and gas giant showed keen interest in investing in a comprehensive package, including setting up a mega oil refinery of 20 million tonnes with ERL, LNG facilities with Petrobangla and a petrochemical complex with Petrobangla/BCIC. 

This estimated investment of $12–15 billion at Matarbari could ensure long-term energy security for Bangladesh as well as earn billions of dollars in foreign exchange each year. Aramco had sent a top-level delegation thrice to Bangladesh between 2017 and 2019 to progress with the projects. Even the Bangladesh Ambassador closely intervened at the Bangladesh end to progress with the projects. 

In June 2019, Aramco Managing Director Waleed K Ghemlas met State Minister for Energy Nasrul Hamid, who urged the Saudi petroleum giant to conduct a feasibility study on the market and asked the BPC to assist it in this regard. 

Unfortunately, both BPC and Petrobangla apparently gave the proposals the cold shoulder and failed to extend the required cooperation to convince Aramco to invest in Bangladesh. The Aramco team was frustrated and diverted their investment to China, South Korea, and India. 

Thus, Bangladesh was deprived of having Aramco and mega investment projects. This investment could ensure Bangladesh long-term energy security, guaranteed supply of crude and LNG, self-sufficiency in petroleum and plastics products, sharing advanced technology, earning billions of dollars each year from exports, and saving 2-3 billion dollars each year from importing petroleum and plastic industry raw materials.

When asked, former Ambassador Golam Moshi stated that it was unfortunate that Aramco, despite their keen interests, failed to get the required support from the Bangladesh end. 

He mentioned Bangladesh seriously lacks experts to attract foreign investments and handle foreign investors. 

"A section of top officials and policymakers here think that foreign investors are walking in the streets of their countries to invest in Bangladesh, whereas it is a very competitive arena where most of the countries are literally fighting to attract foreign investors," the former Bangladesh's envoy to Saudi Arabia lamented, giving his views why Bangladesh as a country is deprived of foreign investments. 

Asked if these projects could be revived again with Aramco, Moshi replied that it is still very much possible provided the right team is deployed with the right strategy in place. It is more likely to happen now "especially when the dynamic leader, HRH Crown Prince Muhammad bin Salam, is keen to see Bangladesh's progress and all the support from Saudi Arabia in place," he felt. 

It has been said that some business people prefer that Bangladesh continue to import petroleum products rather than become self-sufficient, since this would allow a coterie to profit greatly from the annual supply of petroleum goods as commission.

Built in 1968, the country's lone refinery has so far been happy with its annual capacity of 1.5 million tonnes, meeting only 20% of the country's demand. 

The refinery's age-old technology was not built to process Russian crude, causing Bangladesh to miss an opportunity to benefit from discounted Russian oil as some other countries including India and China did.

Even cash-strapped Pakistan placed its first order for discounted Russian crude oil in April last year. Its four state-owned petroleum companies teamed up with Saudi Arabia's Aramco to build Pakistan's largest oil refinery with an investment of $10 billion in the strategic Gwadar Port.

But Bangladesh's state-oil monopoly, BPC, could neither proceed with Aramco's huge investment proposal in the refinery, nor it advanced with its second unit project planned a decade back. 

In a major policy shift, the government is also now moving towards allowing the private sector to import and refine crude oils and market their products through their own networks.

Because the government has not been able to expand ERL to keep up with the increasing demand, the private sector has been recently allowed to establish and run oil refineries. 

Since energy is a very sensitive national security issue, fuel oil facilities going out of the government's hands and ending up in the hands of a small number of entrepreneurs and syndicates might endanger both the economy and national security in the future, experts fear.