With almost no fund in its account, the Barapukuria Coal Mine Company Ltd (BCMCL), under Petrobangla, faces the immediate challenge of paying China Tk 100 crore as the sixth instalment of the supplier's credit that was signed in '95. This instalment must be paid in early March.

As per the deal with China, the government guarantees the payment of this instalment, the source pointed out. It means if the BCMCL is unable to pay, it would become the finance ministry's headache.

"From this point on, the BCMCL will have to pay China more than $100 million by 2012 in 11 more instalments," he added. Each of these instalments has a gap of six to eight months. Upon these payments, the mine becomes free of the liability of the supplier's credit.

It has already paid China Tk 662 crore in five instalments.

"Sadly, the BCMCL does not even have any working capital to keep its wheel running and arrange any payment. In other words, in absence of working capital the mine is gradually becoming a huge liability of the government," he said.

The mine built under a grossly flawed Chinese supplier's credit deal remains shut down since October last year. As a result, the coal-fired 250megawatt power plant at the site is also facing uncertainty. The mine was built under a Tk 1,700 crore credit and the power plant was built under another $260 million Chinese supplier's credit deal.

The BCMCL intends to resume operation from February 27. "We are importing some mining equipment from China. If these arrive in time, we will resume the mine's operation from February 27. Otherwise this might be delayed by a week or so," said the source.

Right now, the BCMCL is recovering from a financial mess that led to its suspension in October last year.

The mine's Chinese developer, which is a consortium led by CMC, stopped production not only for non-payment of the fifth instalment of the supplier's credit but also for the non-payment of mining equipment supplied outside the purview of the contract.

Sources said the contract, spearheaded by Khandakar Mosharraf Hossain, energy minister of the previous BNP government, is full of glitches that it did not even say how mining equipment would be supplied. According to Hosaf chief Moazzem Hossain his company promoted the credit scheme. Hosaf has been representing the builder of the mine, power plant and the consultants of both the projects; making it impossible for the government to ensure their quality implementation.

"The mining equipment are mostly Chinese and we can't buy them from any other source. The mine developer is not obliged to supply them. We must buy these separately under separate contract," said a BCMCL source.

As a result, since it started partial commercial operation from 2005, the BCMCL started procuring mining equipment from CMC without making any payment. At the same time, it refrained from paying the fifth instalment of Tk 62 crore which was due in October 2005. The CMC stopped all activities in October last.

The BCMCL paid the fifth instalment in October 2006 and by mid January 2007, it paid another Tk 30 crore for the purchase of mining equipment and $1.5 million for CMC's annual operation charge.

With these payments done, the company expects to resume its operation. However, the challenge of paying the next instalment is already affecting the spirit of the company.

"The fact is, the company and the project had been grossly neglected by the government. The BCMCL is the first of its kind in operation in Bangladesh. But the government did not think of a minimum financial package to help kick-start its operations on its own," said a senior official.

The main buyer of the mine's coal is the Power Development Board (PDB), which owns the flawed 250megawatt power plant at the site. When the PDB buys the coal, it does not pay Value Added Tax (Vat), instead this job goes to the BCMCL. Again, the PDB also deducts 2.4 percent of payments as income tax in advance. The BCMCL must also pay the government an annual royalty and the debt service liability related to the project loan. Again, the PDB does not always make its payments timely, which affects the financial discipline of the BCMCL.

With so much financial pressure, the BCMCL was unable to pay huge amount of Vat, putting the company into another legal and operational mess. The company still owes the National Board of Revenue Tk 3 crore.

"Somebody should pay attention here. Every enterprise needs some financial rules, guidelines and incentive to move on. Private investors get incentives. Even if the BCMCL is not given an incentive, it needs the basic minimum working capital to move on and survive," says a Petrobangla senior official.

During its operation, the BCMCL is expected to produce around 80,000 metric tons of coal a year with the help of CMC, which in exchange gets about $1.5 million for operation maintenance.