Cost up 5 times in 5yrs

The government is set to sign a contract with a Chinese company to build a 110km oil pipeline in the Bay of Bengal to facilitate smooth unloading of oil from large ships in deep sea to storage facilities in mainland.

Presently, large oil importing ships anchor in deep sea and smaller ships unload and bring the oil to storage facilities of Eastern Refinery Ltd (ERL) in Chittagong. This process called “lightering” is an expensive operation and it takes 11 days to unload 1 lakh tonnes of oil. Other than time and cost, a lot of oil is systematically stolen during the process, officials say.

But if a pipeline known as Single Point Mooring (SPM) is installed to replace lightering, it would take just two days to empty a vessel carrying such a volume of oil. This will cut down cost and stop pilferage.

A commercial contract with China Petroleum Pipeline Bureau (CPPB) following an unsolicited negotiation may be signed during the upcoming Chinese prime minister's visit in September. A memorandum of understanding with CPPB was signed in September last year.

The CPPB is a large Chinese pipeline company that has wide experience in installing pipeline on land. It, however, lacks the experience of installing pipelines in the sea.

However, the cost of this important project, being financed by China on a state-to-state cooperation basis, has been raising eyebrows.

Back in 2010, following an initial study for the project, its cost was estimated at just $129 million. But later studies revised both the project's design and cost a couple of times and the project cost jumped up to $543 million.

“Right now the approved project cost is Tk 4,243 crore or $543 million,” said a source of Economic Relations Division (ERD). “Of this, China will provide $423 million loan at 2 percent interest with 15 years repayment and five years grace period. The government will arrange the remaining cost,” the source added.

This is, however, not the end of the project cost escalation as the energy ministry has recently asked the planning ministry to approve further cost escalation up to $686 million. This escalation is based on the latest revision by the project's German consultant ILF.

According to industry experts, this project should not cost more than $350 million to complete.

SPM PROJECT

The Single Point Mooring installation will be built in the Sonadia deep sea area where large oil tankers would anchor. As per the latest project design, two large 36-inch pipelines will be built there to transmit the oil to a storage facility 16km away on the Matarbari island of Maheshkhali. One pipeline will transmit crude oil and the other diesel.

From Matarbari, two 18-inche pipelines will be built up to ERL storage in Chittagong over 90km away. There will also be two pumping stations to transmit the oil.

The ERL says the initial project cost estimate and design were both wrong. As a result it may appear that the project cost had gone up questionably.

One official noted that Pakistani firm Enar Petrotech Services in 2009 conducted a feasibility study and proposed setting up a direct pumping SPM in the deep sea by installing a 77km-long 36-inch-diametre pipeline offshore and onshore combined. With the vessel pumps, crude/diesel oil was supposed to be pumped directly to the refinery via SPM without any intermediate pump station and with a flow rate of 2,900 cubic metre per hour.

Enar Petrotech assessed that the construction part would cost $129 million.

On the basis of this study, the government sought fund from the Islamic Development Bank (IDB), which agreed to provide the fund.

Later, the government appointed ILF Consulting Engineers of Germany as the project's consultant to prepare the details for the project.

The ILF in a follow up survey found several flaws with the Enar Petrotech's study stating that direct pumping of the oil was not practical as the ship manufacturers and the vessel data show that their pumping pressure was limited. Besides, Enar Petrotech's suggested oil delivery point was also wrong as the depth of water was not sufficient to moor large oil carrying vessels. The pipeline route also overlooked other issues.

The ILF opined that the direct pumping option had to change alongside the location of the SPM. Instead, there would be a pump station and an oil tank farm in Maheshkhali that includes a three crude oil tanks and three high speed diesel tanks with net capacity of 2,40,000 tonnes, pump station with booster pumps, transfer pumps and drain pumps, generators, metering stations, block valve stations and housing facilities and other human resources infrastructures including control room. It accordingly revised the project design.

The Eastern Refinery is the only source of local supply of petroleum products that annually processes 1.5 million tonnes of crude oil. The ERL is currently pursuing an annual production capacity of 4.5 million tonnes. “This pipeline will also help the ERL to process more crude oil than it can now,” said an official.

The existing infrastructure at Chittagong port is incapable of handling large crude oil tankers due to the shallow draft of the Karnaphuli river channel. Due to this, the crude vessels are anchored at deeper waters and smaller vessels unload the supply through multiple trips between these ships and the ERL.

Original date of commencement of project was March 2010 to be completed by December 2012. Now it has the target to complete in June 2017.