ISLAMABAD: China Power Hub Generation Company (Pvt) Ltd (CPHGC) has sought government’s help for reduction in API 4 index for imported coal price in international market and diversion from imported coal to local spot market coal.
In a letter to Nepra chairman, the company’s CEO gave reference of different letters wherein it was stated that the company has to procure minimum off take commitment of 50 percent of the annual consumption under its long-term coal supply agreement with the international traders and in case of default, the liquidity damages will be applicable thereof.
To avoid implementation of any such damages, a formal instruction letter was sought from Nepra. However, it was also stated that the coal prices in the international market especially API-4 index price, had declined in past weeks. Due to this plunge of international coal prices and considering the impact of USD/PKR parity thereof, the imported coal has become cheaper than the local coal and Nepra has allowed procurement of local coal only in case it is cheaper than the imported coal.
CPHGC seeks revision in Nepra’s coal price notification
Keeping in view the existing scenario, CPHGC has sought help from government to get a revised notification issued from Nepra to allow the company to reimburse part of local procurement of which the price is higher than imported coal; as the spot coal procurement agreement is signed with a term of 45 days the company may re-negotiate the price with local suppliers but there is still a possibility that the local procurement price may remain higher than the imported coal.
Furthermore, it was also noted that the imported coal procurement cycle is 45 days from issuance of coal order to actual delivery and advice was solicited for an amicable solution in this scenario as the local coal price is higher than the imported coal price and suspension of the local coal procurement may adversely affect the coal inventory plan.
The sources said, company also had a meeting with NEPRA and was informed that in the absence of any revised instructions from the Government of Pakistan, they are bound to follow their previous instructions whereby Nepra has allowed spot coal procurement to the company with the condition that cost for spot coal should remain lower than imported coal.
However, in the current market situation, this condition is not possible to be complied with as local coal procurement is in Pak rupee. In light of discussions, the company again requested to provide instructions to Nepra for issuing revised notification to allow the fuel cost reimbursements of spot local coal procurement as per the signed spot coal procurement agreement with a term of45 days.
The company maintained that although the local coal price is higher than imported coal due to the substantial slump of Ap14 index and the appreciation of rupee against the US dollar, the local coal market price has not shown a declining impact. In view of the nature of spot coal purchase, the revised price quotation from local coal traders with payment in PKR, have not declined substantially as compared to the imported coal.
The company says that further instructions from government are awaited to reach an amicable solution in this current scenario as spot coal price is higher than the imported coal price and suspension of spot coal procurement may adversely affect the coal inventory plan. And the factor that the procurement cycle of imported coal is 45 days from the order issuance date to its delivery at plant site should also be considered.
The CEO of the company has sought resolution of existing issues as any further delay will adversely affect an already stressed coal procurement plan and inventory levels of the plant.
Copyright Business Recorder, 2022
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