S Alam Group, the controversial industrial conglomerate, has been excluded from the construction of the long-awaited second unit of Eastern Refinery Limited (ERL).
Following the recent power shift, the interim government has made a policy decision not to engage in contracts with this business conglomerate.
The construction of the long-awaited second unit of Eastern Refinery Limited (ERL), a state-owned enterprise, has been stalled for 12 years, reportedly due to obstruction from the controversial industrial conglomerate S Alam Group.
Bangladesh Petroleum Corporation (BPC) has been compelled to spend over $250 million annually on importing refined oil due to the insufficient capacity for refining fuel domestically, leading to an increased financial burden on the population.
In a recent development, the Ministry of Power, Energy and Mineral Resources informed that the ousted government of Sheikh Hasina finalised a decision in February this year to involve S Alam Group in the construction of ERL's second unit.
The group's proposal, which initially demanded an 80 per cent ownership stake in the project and later 51 per cent, sparked strong opposition from some officials within ERL and BPC.
BPC advocated for the then-government to retain 60 per cent ownership of the project. However, instead of finalising the partnership details, it was decided to sign a memorandum of understanding (MoU). The draft MoU was sent to the law ministry for vetting in the last week of July. Officials believe the contract would not have been stopped if the government had not ousted.
The energy division was also not in favour of S Alam Group’s partnership in the refinery construction. Two senior officials from the division said that a proposal to cancel the contract was made in light of the changed circumstances, and a new course of action will be determined for implementing the project.
Md Nurul Alam, secretary of the Energy and Mineral Resources Division under the Ministry of Power, Energy, and Mineral Resources said that the construction project of ERL’s second unit will be financed domestically, and an open tender will be issued to appoint a contractor for its implementation.
ERL, BPC officials opposed S Alam Group inclusion
Officials from ERL and BPC have reportedly protested on several occasions, advocating for the project to be fully funded by the government without involving S Alam Group. However, their objections have not been upheld, reportedly due to the conglomerate’s significant influence within the higher echelons of the Sheikh Hasina government.
A junior official from BPC, speaking on condition of anonymity, told The Business Post that several influential figures linked to S Alam Group continue to hold key positions at the highest levels of government. Even the then-state minister Nasrul Hamid is perceived to be aligned with them.
These officials have been lobbying extensively to ensure S Alam’s involvement in the ERL second unit project, despite BPC allegedly having sufficient funds to finance the project independently. Financial constraints are often cited as a justification for the delays, thereby reinforcing the need for S Alam’s participation.
The official further noted that despite changes in the higher-ups, those benefiting from S Alam Group’s influence remain entrenched within BPC and ERL. Describing these individuals as “national enemies,” the official claimed they have played a key role in delaying the construction of this critical national infrastructure for over a decade.
ERL’s history and current challenges
Eastern Refinery Limited (ERL), the country’s only crude oil refinery located in Chattogram, was originally constructed in 1968 during the Pakistan era with an expected lifespan of 30 years. Despite its age, the facility remains operational, a testament to the advanced construction methods employed at the time, according to officials from the energy division. Currently, ERL has an annual refining capacity of 1.5 million tonnes of crude oil.
However, BPC states that the country’s current annual petroleum demand is estimated at around 6.5 million tonnes, and the limited refining capacity has necessitated substantial imports to meet this demand, costing the government over $250 million annually.
In an effort to address this shortfall, the ousted Awami League-led government initiated the construction of a second unit for ERL in 2012, aiming to add an additional refining capacity of 3 million tonnes per year.
Cost escalation and contractor issues
The project, initially estimated to cost Tk 7,500 crore, has seen its budget balloon to over Tk 23,000 crore following multiple revisions. France’s TechnipFMC, selected for their expertise, was appointed as the project contractor and completed the design for the second unit. Notably, TechnipFMC was also responsible for constructing the original ERL in 1968.
However, after completing the design, TechnipFMC withdrew from the project, reportedly citing interference from S Alam Group.
BPC officials have alleged that S Alam Group obstructed the project from its inception, as the group had plans to construct its own refinery independently at that time.
Amid this impasse, BPC reinitiated efforts to construct the second unit, appointing India’s Engineers India Limited (EIL) as the project management consultant (PMC) on April 19, 2016. During the contract signing ceremony, then-state minister for energy Nasrul Hamid said that physical work on the project was expected to begin by 2017.
Concerns over financial management
ERL Managing Director Md Lokman recently revealed to reporters in April this year that Tk 1,100 crore has already been spent on feasibility studies, design work, and other preliminary tasks.
He pointed to S Alam Group's proposal and subsequent demands as significant reasons for the project's current stagnation, noting that the group wishes to be heavily involved, and the government seems inclined to agree.
He further stated that BPC had formed a seven-member committee to evaluate S Alam’s proposal and expressed concerns about the future of the Tk 1,100 crore already spent if the project were to proceed as a joint investment with S Alam.
S Alam Group reportedly initially sought an 80 per cent stake in the project, later reducing it to 51 per cent, a matter still under negotiation, he added.
Sources within the Energy and Mineral Resources Division have indicated that the original financial structure proposed 70 per cent of the project costs to be covered by the government and the remaining 30 per cent by BPC's own funds.
S Alam Group’s involvement formalised
In October 2023, the project proposal underwent another revision, setting the cost at Tk 23,736 crore. Initially conceived as a fully state-funded initiative, the project’s trajectory shifted when S Alam Group submitted a proposal to join the venture before the revised plan could be approved.
On January 29, S Alam Group’s Chairman Mohammed Saiful Alam, submitted a letter to the secretary of the Energy and Mineral Resources Division, proposing a memorandum of understanding (MoU) for constructing a new refinery with a capacity of 3-5 million tonnes.
Subsequently, on February 5, the Energy and Mineral Resources Division formally approved S Alam Group’s involvement in the construction of ERL’s second unit, citing financial constraints as the rationale.
However, in 2022, then-BPC Chairman ABM Azad had informed the media that BPC had already set aside Tk 22,000 crore in fixed deposit receipts (FDR) for the construction of the second unit.
Concerns over state ownership & recommendations
ERL Managing Director Md Lokman told The Business Post that the inclusion of S Alam Group was a unilateral decision made by the previous government, without consulting BPC or ERL officials.
He expressed concerns that involving S Alam Group in the second unit could create complications, as the first unit is entirely state-owned. Lokman noted that BPC and ERL have repeatedly opposed this move.
Following the receipt of the Energy and Mineral Resources Division’s letter, BPC formed a committee to address the issue. The committee recently made six recommendations, stressing the importance of constructing the refinery under 100 per cent state ownership to safeguard energy security.
The committee also suggested that if the project proceeds under a public-private partnership (PPP) with S Alam Group, BPC should retain a 60 per cent ownership stake. Attempts to contact BPC Chairman Md Amin Ul Ahsan for comments went unanswered.
