ISLAMABAD: Despite the government’s and the International Monetary Fund’s (IMF) general policy direction for localization and import substitution, concerns are being raised about the long-term procurement of imported coal for power plants as unaffordable power supplies affect demand and drive consumers out of the national grid.
Power plants are entering the long-term coal import market, which offers abundant liquidity and availability. This is because the National Electric Power Regulatory Authority (Nepra) reduced the cost of coal by nearly half by streamlining spot imports through procurement procedures.
Former caretaker power minister Muhammad Ali had launched an inquiry into coal purchases for the Sahiwal Coal Power Project due to his feelings of delinquency. He recommended a report be submitted within 14 days, or by March 15, 2024. It appears that investigations have been put on hold.
At a public hearing, Rehan Akhtar, the CEO of the Central Power Purchasing Agency (CPPA), was asked about coal purchases. He brushed off the questioner’s inquiry, claiming that similar inquiries had deterred oil and gas exploration. If there is any evidence, he stated it should be given to Nepra. Nepra also refrained from commenting on the matter last week, but it did acknowledge receiving the former minister’s letter of inquiry.
It’s interesting to note that Nepra has no regulatory authority over the purchase of coal; instead, it can only offer instructions and bank on invoices that the CPPA provides for tariff calculations.
The Sahiwal power facility has been buying coal between June 2022 and December 2022 for roughly Rs74,000 per tonne, according to Nepra’s records. According to their disclosed financial statements, publicly traded companies in the textile and cement sectors, among others, were obtaining coal for less than Rs45,000 a tonne at the same time.
About 300,000 tons are needed each month for the Sahiwal project, with consumption determined by demand. Over $100 per tonne on average translates to well over $360 million for a yearly 100 percent use. The additional yearly cost to consumers may have exceeded $1.4 billion if additional projects, such as Port Qasim and China-Hub Power, had done the same.
Until early January 2023, when Nepra eventually sent out “Guidelines for Procurement of Coal on Spot Basis,” these inflated purchases remained unchecked.
The Sahiwal power facility, which was producing energy at Rs28–30 per KWh (according to fuel price estimations for the June to December 2022 period), decreased it to Rs19 per unit as a result of these instructions and the numerous suppliers that followed. As a result, the cost of producing power from the same facility dropped by 34%.
However, several of the short-listed traders expressed dissatisfaction about major obstacles they encountered as a result of the power project, such as unilateral liquidated damages, postponed shipments, and decreased order upliftment. The new suppliers argue that by imposing large losses on them, the electricity producer was trying to teach new participants a lesson. These measures caused the new suppliers to suffer huge losses.
Unexpectedly, the previous supplier who lost the tender due to price was offered the chance to match the lowest bid and was then granted priority or the first right to supply the coal, disregarding the bids with the lowest prices.
Then, in an official message to Nepra, the power producers said that the government’s demand had decreased, and the lowest price bids were refused supplies. Several forums have heard these suppliers’ complaints about the large losses they suffered and the words and deeds that discouraged them, favoring the long-standing supplier.
Similar to the strategy used in the wheat incident, the power company once more signed a long-term coal supply deal in December 2023. However, this contract seemed to be specifically designed for the previous supplier, who had already imported the coal before the tender. The bill of lading at the loading port is dated December 13, 2023, according to Nepra’s website. This date is even earlier than the contract award date, which is December 22, 2023.
The first cargo had to arrive before the end of December 2023, or essentially within six days of the contract being signed, according to the bidding conditions. This was accomplished when the shipment arrived on December 28, 2023. Ironically, the Sahiwal power plant was included as one of the parties involved in the bill of lading, which amply demonstrated prior agreement on the supply arrangement with the favored supplier even prior to the date of signing.
According to the bidding documents, the bidder had five days from the date the buyer notified them that they intended to award the contract to finish signing the contract. Therefore, on December 13, 2023, when it loaded the vessel with the buyers’ name on the bill of lading, that is when the seller may have learned of the plan to award by December 17 at the latest. This suggested lax regulatory and governmental monitoring at the expense of the interests of the public and consumers.
It’s interesting to note that this was carried out without reference to any most recent Nepra long-term procurement rules. Consequently, the previous supplier became the sole eligible provider and has been supplying coal ever since, with no other offers. Although there are explicit standards for spot procurement, Nepra started the process of developing long-term procurement guidelines; however, tenders were accepted, and tariffs were later authorized.
This is all taking place while multilaterals express worries about opaque tender procedures, ineffective procurement, and a lack of competition that keeps driving up energy prices for consumers. Increased costs have resulted in a 7–10% decrease in power usage, and circular debt has been growing while the regulator and the government ignore the fundamentals of a free market where competition drives down consumer prices.
Several sources claim that other power projects are also considering rerunning the Sahiwal Coal Power Project procurement process in order to get longer-term contracts. Since then, these producers have released tenders that aim to turn the anomaly become the standard in the market.
