B Mirror Report:  Bangladesh has entered detailed negotiations with the Islamic Development Bank (IsDB) over a financing package of more than $1 billion to support the modernisation and expansion of Eastern Refinery Limited (ERL), a key project aimed at strengthening the country’s energy security.

According to officials at the Economic Relations Division (ERD), the proposed financing is structured in two tranches $520.59 million and $483.10 million—under a Shariah-compliant “forward lease” arrangement. The model links disbursement to strict conditions, floating market-based pricing, and a six-month execution timeline.

The financing cost will be tied to the six-month SOFR benchmark with additional spreads. The package carries a tenure of up to 20 years, including a five-year grace period and 15 years of repayment, with semi-annual payments during the construction phase. Officials noted that failure to meet key deadlines or conditions could lead to automatic cancellation of the facility.

Several ERD officials confirmed that discussions with the development partner are ongoing and that the terms are expected to be finalised within the current month.

Under the proposed structure, IsDB will directly procure refinery equipment and lease it to Bangladesh under a rent-to-own model. Ownership will be transferred to the government after full repayment. Bangladesh Petroleum Corporation (BPC) will act as the executing agency.

Procurement will follow IsDB guidelines, with Bangladesh responsible for contract negotiations, insurance coverage, and any additional costs not included in the financing package.

The financing will only become effective after meeting strict conditions, including legal validation of agreements, confirmation of counterpart funding, approval from BPC, and appointment of project management consultants. Environmental, safety, and climate risk compliance will also be required before the first disbursement.

ERD officials acknowledged that the terms are relatively stringent and structurally complex but said they are manageable if the project is implemented efficiently.

As no other development partner is currently financing the ERL-2 project, officials said the IsDB offer is considered critical. Once operational, the project is expected to generate steady returns, they added.

The project aims to expand ERL’s crude oil refining capacity from 1.5 million tonnes to 4.5 million tonnes per year through the installation of a second unit. It is scheduled for completion by November 2030.

Originally established in 1968, Eastern Refinery currently meets around 20% of Bangladesh’s petroleum demand, with the rest imported. The expansion project will also produce Euro-5 standard gasoline and diesel to upgrade fuel quality in the domestic market.