CMC fails to deliver, presses for $30m

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While Chinese company CMC is mounting pressure on the government for immediate payment of about $30 million in cash and benefits for Barapukuria coal mine, the mine authorities’ legal adviser has strongly opposed making such payment.

The way CMC has failed to comply with its promises amounts to “criminal wrongdoing ” and “fraud under the law of Bangladesh,” he says.

The Barapukuria Coal Mining Company Ltd’s (BCMCL’s) legal adviser has firmly objected to payment of $15 million sixth instalment of a Supplier’s Credit to CMC because it has repeatedly failed to fulfil contractual obligations. The payment is due on March 18.

The legal adviser has also suggested that if CMC refused to accept the BCMCL’s request to extend its Bank Guarantee (BG), which is due to expire on March 7, Bangladesh may encash the BG on the ground that the Chinese company failed to meet its contractual obligations.

While the BG is worth $12 million, CMC has been pressuring the government to cut it down by about $8 million after March 7.

Besides, the legal adviser has pointed out that contractually CMC cannot ask for release of a “retention fund” worth $ 5.1 million in its favour. The government retained this fund to ensure quality work.

In such a situation, representatives of CMC and the Chinese embassy will meet the energy adviser today at the energy ministry.

Sources said the meeting will be also attended by representatives from Petrobangla and the BCMCL.

Meanwhile, coal production from the corruption-plagued Barapukuria mine remains suspended since October last year as CMC stopped work demanding various payments. Some of these payments were related to purchase of mining equipment without any contract. Suspension of coal production has also affected power production at the highly faulty and excessively costly coal-fired 250 MW Chinese-built power plant.

Though the government has already paid China Tk 662 crore in five instalments, CMC has not been able to complete the project even eight years after the original schedule.

Against this backdrop, Petrobangla, which is the guardian of the BCMCL, changed the BCMCL’s top management late last year with the aim to bring life to this Tk 1,600 crore project, now a massive liability to the country. The BCMCL then held negotiations with CMC to resume operation while paying it some of the outstanding dues.

The BCMCL now expects resumption of coal production next week.

While the BCMCL largely succeeded in softening CMC’s stance, the Chinese company started insisting on getting various cash payments and benefits. Otherwise, it will not resume coal production, it says.

In this situation, the BCMCL sought legal opinions about these payments.

In a letter on March 1, the legal adviser said, “Since CMC has failed to perform their obligations under the contract repeatedly and also did not discharge their obligation as per their written undertaking, BCMCL can withhold payment of the 6th instalment. Moreover, since the engineer’s certificate and the undertaking are not yet issued, there is no legal need to process the payment.”

The letter noted that before the payment of fifth instalment in 2006, CMC was given a condition that it must conduct some major rectification work. “CMC undertook in writing that they are obliged not only to rectify the listed items within the Defects Liability Period but also that if any further rectification work… identified following re-inspection, CMC is obliged to rectify the same,” it said.

The letter added, “CMC did not complete the rectification work… although they have given written undertaking to do so before payment of the 5th instalment. This shows an apparent mala fide intention of CMC to make false promise…. This kind of activity is a criminal wrongdoing which amounts to fraud under the law of Bangladesh.”

Clearing the BCMCL of any legal obligation to pay the 6th instalment, the legal adviser suggested, “If the government… desires to make the said payment considering the situation prevailing currently on policy ground, then under such explicit directive of the government, BCMCL may approve the payment.”

In a separate letter on CMC’s bank guarantee, the legal adviser mentioned that CMC has furnished the BG as security to the BCMCL but it could not even complete the mine’s work within the Defects Liability Period which is due to expire on March 7.The BCMCL has asked CMC to extend the liability period and the BG to finish its incomplete work.

Since CMC has failed to complete its promised task, the BCMCL can place its demand to the bank on or before March 7.

On the question of “retention fund”, CMC wants the BCMCL to pay it $5.1million that was retained by Bangladesh as a guarantee of quality works. This fund was created against expenditure under local funds as a measure similar to BG which is issued for expenditure under foreign funds.

But the Chinese company in July 2005 gave the undertaking that “CMC has agreed not to pursue the release of retained amounts for items requiring rectification work during the Defect Liability Period until these work have been completed to BCMCL’s satisfaction”.

Sources said the legal adviser’s letters have given the BCMCL a strong mandate to stop undue payments. “But the problem with this mine is far from being solved,” said a senior official.

Because of the grossly faulty 1995 deal with China, Bangladesh has to pay it more than another $100 million till 2012 in 11 more instalments.

The contract, spearheaded by Dr Khandker Mosharraf Hossain as energy minister of the immediate past BNP government, is full of so many 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 is representing the builder of the mine and power plant, and consultants of both the projects, making it impossible for the government to ensure their quality implementation.

“Though Bangladesh hardly gained from this loss-making project, Hosaf and CMC made it all,” regretted a senior official.

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