Chinese Company Warns to Stop Work at Thar Coal Mines Over Non-Payment

Chinese Company Warns to Stop Work at Thar Coal Mines Over Non-Payment

Karachi, August 30, 2023 – The China Machinery Engineering Corporation (CMEC) has issued a stern warning, indicating its intention to halt work at the Thar coal mines if outstanding payments are not cleared by September 10, 2023.

The CMEC cites overdue receivables amounting to a staggering $50 million as the primary reason behind this ultimatum.

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In a letter addressed to the Sindh Engro Coal Mining Company (SECMC), the CMEC expressed growing concern over the mounting debt, which, as of the end of July, had surged to $50 million. This financial deadlock is now deemed the most pressing issue for both SECMC and CMEC, potentially jeopardizing the continuation of the Thar Coal Mine Project.

According to the CMEC’s letter, there are merely four months remaining in the contract period for the Thar Coal Mine Project, with approximately $30 million in offshore and onshore milestone payments due in the coming months. The company affirmed its commitment to maintain coal production at 25,000 tons per day until September 10th despite significant equipment shortages.

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However, the CMEC made it unequivocally clear that SECMC must obtain payment approvals from relevant banks or the government within this timeframe; otherwise, the Thar Coal Mine faces the grim prospect of substantial production cutbacks or even a complete shutdown.

The CMEC pointed out that only $22 million had been remitted between April and July of the current year. Moreover, the monthly remittances of offshore overdue receivables from SECMC had witnessed a sharp decline since June. In June, a mere $3.7 million was remitted, falling significantly short of the expected $10 million per month. This figure dwindled further to $3.4 million in July, with offshore overdue receivables showing no payment at all in August.

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Furthermore, the CMEC warned that it had previously informed SECMC that CMEC headquarters would impose a 20% and 10% bad debt or provision depreciation treatment on overdue receivables with an aging period exceeding one year and six months, respectively. The CMEC emphasized its commitment to clear these overdue receivables promptly, sharing a specific payment schedule with SECMC, aiming to complete the collection of all outstanding debts before the end of October.

The CMEC highlighted that the Thar Coal Mine Project was grappling with unprecedented financial difficulties, causing a severe shortage of funds for essential services, parts, and accessory expenses owed to subcontractors. The shortage of spare parts has resulted in equipment malfunctions and extended downtime, severely hindering normal coal mining operations and jeopardizing the mine’s stability.

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Concluding their plea, the CMEC expressed their sincere hope that SECMC would comprehend the gravity of the challenges faced, meet their payment responsibilities as project owners, and ensure the smooth continuation of the remaining contract period. Failure to do so, the CMEC warns, would not only have operational consequences but would also impose severe psychological and economic burdens on their site teams, including potential wage deductions. The Thar Coal Mine Project, a significant endeavor, stands at a critical juncture, awaiting a resolution to this financial impasse.