Bangladesh News

Due to massive project cost escalation and low coal production, Barapukuria coal mine has incurred a loss of Tk 128 crore since it started production two years back, according to a Petrobangla source.

The mine will continue to incur losses for around six years even if it maintains a healthy coal production rate and the government maintains a coal sales rate of $70 per tonne.

According to the mining company’s report, it incurred a loss of Tk 52 crore in fiscal 2005-06 and Tk 77 crore in 2006-07.

“But it will not incur losses forever,” said the source. “According to a proposal, the coal sales rate may be increased to 95 dollars in 2010. With such a rate, if the mine can produce around eight lakh tonnes of coal a year, the mining company will reach its break even point in 2014-15.”

When the mine project was approved in the early nineties, production cost of coal was estimated at $35 per tonne and annual production target was set at two million tonnes for 30 years. The original project cost was less than Tk 800 crore, and the project was supposed to start operation in 2000.

But the Chinese Supplier’s Credit financial package coupled with poor project implementation doubled the project cost to Tk 1,600 crore while the annual production target nose-dived to 800,000 tonnes a year. As a result, the coal production cost almost tripled.

According to Barapukuria Coal Mine Company Ltd (BCMCL) of Petrobangla, coal production cost was $91 per tonne in fiscal 2005-06 and $84 in 2006-07. Since the mine went into operation, the government had set coal sales price at $60 a tonne.

But because of this high production cost that was imposing huge loss on the company, the BCMCL had been asking the government to increase the coal sales price. The government had formed a committee that included members of Petrobangla, the BCMCL and the main consumer of coal Power Development Board (PDB) several months ago. Based on the committee’s recommendation, the government increased the sales price to $70.

“But the production cost will reduce further from this year due to steady production,” said a high official.

From early this year, the mine has been steadily performing so well that it has almost completely filled up its coal yard having a storage capacity of 1.3 lakh tonnes. On an average, the mine is producing 3,000 tonnes of coal daily – double the regular production level achieved in its troubled past.

Till now, the government has paid the Chinese government seven loan repayment instalments. It is now ready to pay the eighth instalment this year.

“If we produce eight lakh tonnes of coal a year, we have a recurring cost of Tk 331 crore annually,” said a source.

“We will annually repay around 16.5 million dollars to the Chinese government till 2012, plus we have a Debt Service Liability (DSL) of Tk 53 crore annually,” he added.

The mine also pays the government five per cent royalty worth around $2.4 million against its annual production of eight lakh tonnes.

The BCMCL also pays the Chinese contractor $3.86 million annually as operation cost and another Tk 8 crore to the mine’s consultant.

In addition to these, the BCMCL spends Tk 60 crore a year for utilities, power and spares of mining equipment.

Against such an expenditure profile, the mine can at best earn Tk 240 crore a year if production is undisturbed and the PDB steadily operates both units of its 250 megawatt power plant at the mine site. Unfortunately, the Chinese built power plant hardly operates in full swing due to innumerable technical glitches.

“If the PDB purchases 50,000 tons of coal each month in case both the power units are operating, the BCMCL makes a Tk 20 crore revenue. If it runs just one unit, the revenue falls to Tk 10 crore,” the source pointed out.

When loan repayment is complete by 2012, annual expenditure of the company will significantly fall.

The underground mine’s design will allow the authorities to extract coal up to at least 2035 and tap only around 25 million tonnes of coal. But the mine has a proven reserve of 389 million tonnes at a depth of 120 metres to 450 metres.

The mine had been a financial mess from the beginning. Blessed with the then Khaleda Zia government’s unusual support in the early nineties, Hosaf Group played a key role in designing the Chinese Supplier’s Credit that dictated a 10 percent down payment to the Chinese project developers to kickstart the project in 1995. The first loan repayment also started only within three years of project development in 1998 when the mine was far away from completion.

Hosaf Group represented both the mine’s Chinese developer and consultant and later also the 250 megawatt coal fired power plant’s Chinese developer. With such a conflict of interest, all the project components became costlier over the years.

The Anti-Corruption Commission recently filed a case against several bigwigs of the past BNP government for corruption in awarding a contract for Barapukuria operation in 2003-04. Hosaf chief Moazzem Hossain is one of the accused but he was tipped to leave the country one week prior to the filing of the case in late February and he left, sources said.