Bangladesh permits privately-owned refineries to help ease supply situation

Bangladesh will allow the private sector to set up oil refineries and sell the output both for domestic consumption as well as for exports, a move that would help ease the domestic supply situation in coming years, a senior energy ministry official told S&P Global Commodity Insights Dec. 12.

The Energy and Mineral Resources Division under the Ministry of Power, Energy has adopted the new policy and published a notification to this effect.

Under the policy, the annual processing capacity of a crude oil refinery set up by the private sector must be at least 1.5 million mt/year.

The refiners will be allowed to sell all types of oil products, including gasoil, jet A-1 fuel, high sulfur fuel oil and gasoline at standards specified by the Bangladesh Standard and Testing Institute.

Private refineries will have to sell at least 60% of their overall refined products output to state-run Bangladesh Petroleum Corp. during the initial three years of operations.

They can sell the remaining 40% output through their own marketing networks during the initial three years after commissioning, according to the new policy.

If the private refineries encounter challenges in selling some of their produce, BPC would retain the option to purchase the surplus oil products from them.

Qualification requirements, roadmap ahead

After the initial three years of operations, private refiners would be allowed to sell up to 50% of their output for the following two years. Following a total five years of operations, the overall performance of the refiners will be reviewed to determine the quantity of oil products to be purchased by BPC.

Private refiners will have to sell refined oil at rates fixed by the government or by the BPC to ensure that consumers get them at uniform retail prices, according to the policy.

Under the policy, private refiners will have to pay Taka 1/liter to BPC as margin against selling their output.

They can export the refined output by making their own arrangements after obtaining clearance from BPC.

For a private entity to qualify, it must have at least three years of experience in energy product manufacturing, marketing and plant operations, or its joint venture partner or consortium must have at least five years of similar experience.

They must have a minimum annual turnover of Taka 50 billion ($450 million) for any three out of previous five years and must have jetty facility.

Private parties having own crude oil sources, own ships to carry crude oil and coastal tankers or tank lorries to transport fuels will get preference in obtaining government permission. After having the final nod, they will be required to provide bank guarantee worth Taka 2.50 billion in favor of BPC before commencing construction of the refinery.

Private sector interest

Bangladesh currently imports around 1.5 million mt of crude oil annually to refine at its sole Eastern Refinery Ltd., a BPC subsidiary. BPC separately imports annually around 7.5 million mt of refined oil products and private power plant owners import around 3 million mt of HSFO.

"This is a very good initiative from the government as it will help ensuring inflow of petroleum products in the country at affordable costs," executive director of Bashundhara Oil and Gas Company Ltd Maksudur Rahman said.

Bashundhara Oil and Gas owns a 2.2 million mt/year capacity refinery at Keraniganj in Dhaka. It produces diesel, furnace oil, bitumen and naphtha.

"We sell gasoil to BPC, HSFO to power plant owners and naphtha and bitumen though our own networking system," said Rahman.

Bashundhara has plans to build a new refinery having capacity of over 5 million mt/year in Chattagram under the new policy, he added.

Bangladesh also has several petrochemicals plants that mainly produce gasoline using condensate.