Written by The Banking Post
The long-delayed second refinery project of Eastern Refinery Limited (ERL) is set for a major cost overhaul, with the government moving to rein in expenses deemed unusually high at the highest policy level.
A revised proposal seeks to cut Tk 44.64 billion—about 12.59 percent—from the project cost, lowering it to Tk 310.01 billion from the Tk 354.65 billion earlier approved. The restructuring follows directives from the Executive Committee of the National Economic Council (ECNEC), which cleared the project in December subject to strict cost rationalisation.
The updated plan is scheduled for review by the Planning Commission’s Project Evaluation Committee and aims to deliver the same refining capacity while eliminating inflated estimates, particularly in construction and engineering components.
According to the proposal, costs across five major components have been reduced by Tk 56.24 billion, while contingency allocations have been increased by Tk 16.0 billion to cover inflation or additional needs.
A senior Planning Division official said the project was initially presented with “extraordinarily high” costs, including building construction priced at nearly four times standard rates. ECNEC approved it with conditions that all costs be justified based on a detailed review.
Under the revised plan, building construction costs have been slashed by 75.46 percent, with scope for further reductions after closer scrutiny. The earlier allocation of Tk 10.19 billion for 20,527 square metres of buildings—about Tk 0.50 million per square metre—has been cut to Tk 2.50 billion, or Tk 0.12 million per square metre, saving Tk 7.69 billion.
Converted to square feet, the construction cost has fallen from about Tk 46,000 to Tk 11,000 per square foot. A former real estate industry leader said even the revised estimate appeared high, arguing that private developers in Dhaka sell flats at much lower costs while remaining profitable.
Officials said the project will now be fully financed domestically, despite earlier consideration of foreign funding to expand refining capacity from the current 1.5 million tonnes per year to an additional 3 million tonnes.
ECNEC also directed reductions where justified in detailed engineering design, construction supervision, commissioning charges, and related facilities. A technical committee of government and private-sector experts will oversee quality during implementation.
The cost review committee recommended aligning construction expenses with Public Works Department rates at Tk 64,600 per square metre, including VAT. It also called for cuts to internal road construction costs, revised down to Tk 1.50 billion from Tk 2.89 billion.
Major savings were also made elsewhere: engineering and equipment costs fell by Tk 17.26 billion to Tk 64.78 billion; other installations were reduced by Tk 16.26 billion to Tk 95.06 billion; and additional capital costs were cut by Tk 13.64 billion to Tk 38.15 billion through optimised supervision and design.
Despite the cuts, the project scope remains unchanged. Once completed, the refinery will process 3 million tonnes of crude oil annually and produce Euro-5 compliant fuels, strengthening energy security and reducing reliance on imported petroleum products.
