Coal pricing mechanism: power plants, coal suppliers question Nepra’s proposed revision

ISLAMABAD: Coal power plants and coal suppliers on Thursday raised questions on NEPRA’s proposed revision in coal pricing mechanism without taking them on board, making irrational deductions, and the exchange rate that is hitting them as their invoices are not being cleared by the concerned agency.

The NEPRA Authority, comprising Chairman Waseem Mukhtar, Member (Tariff and Finance), Mathar Niaz Rana, (Balochistan) Member (Technical), Rafique Ahmad Shaikh, (Sindh) Member, Khyber Pakhtunkhwa, Maqsood Anwar Khan and Member (Law) Amina Ahmad (Punjab) officiated public hearing which was attended by the representatives of coal-fired plants, coal suppliers and CEO Central Power Purchasing Agency–Guaranteed (CPPA-G), Rehan Akhtar.

NEPRA had framed following questions: (i) whether the procurement of coal through tendering is justified? (ii) whether procurement of 10%-20% coal from spot market is justified? (iii) whether the use of AP-4 index for South African coal having CV> 5850 (RB1)kcal/kg is justified?(iv) whether the application of published price differentials (discounts) of 5700(RB2), 5500 (RB3) and 4800 to API 4 for South African coal having CV <5850 is justified? (v) whether the use of average of M50 and ICI-3 indices for Indonesian coal of CV4600 kcal/kg (NAR) instead of ICI-3 is justified?(vi) whether the use of average of M42 and IC|-4 indices for Indonesian coal of CV<4,600 kcal/kg instead of ICI-3 is justified?(vii) whether the use of GC NEWC for Australian coal having CV 2 5850 kcal/kg and with appropriate discount for CV between <5850 and 5600 kcal/kg is justified?(viii) whether the use of API 5 for Australian coal having CV between <5600 and 5300kcal/kg and with appropriate discount for <5300 is justified? and (ix) any other relevant issue arising during the proceedings.

Some of the representatives ofcoal-fired power plants argued in favour of negotiated tendering process saying that they have Power Purchase Agreements (PPAs) and long-term coal contracts; and opposed adjustment of any differential.

They also raised the issue of exchange rate which is hitting them adversely, adding that its 46 cargoes have already been affected, causing financial loss of $ 8 million.

“Since the company has never earned profit, how can it pass on the differential with respect to coal pricing,” said one of the representatives of coal power plants.

The representatives of China Hub Power Plant did not raise any objection to the coal purchasing mechanism saying they accept the two mechanisms, ie, negotiation and spot.

Barrister Asghar Khan, who was representing China Hub Power urged NEPRA to share reports of consultants including the consultant funded by the Asian Development Bank (ADB) to reach a fair conclusion. He also argued against deductions and differentials.

He contended that since the company’s different correspondences have not been answered by the Authority then how a new mechanism is being proposed.

Chief Executive Officer (CEO) CPP-G, Rehan Akhtar also supported both (tendering and spot) coal procurement mechanisms, saying that both mechanisms are valid.

He also requested NEPRA Authority to allow adjustments to coal power plants as their invoices are pending since years and in case no adjustment is allowed with respect to exchange rate, coal-fired plants will be in loss.

Member (Finance and Tariff) shared some invoices wherein substantial difference of rates in coal procurement was found.

Coal suppliers also shared their concerns on the proposed coal procurement mechanism and suggested ways for smooth supply with stabilization prices.

Upfront tariff for coal power plants was determined on June 26, 2014. Three power plants of 1320MW each have achieved CODs under the upfront regime. The Authority initiated review proceedings in January 2016 to review the fuel price adjustment mechanism prescribed in the coal upfront tariff. After following due process of law, the Authority vide its decision dated September 23, 2016 prescribed revised fuel price adjustment mechanism for coal power project. Terms & Conditions of the decision provides that the pricing mechanism shall be reviewed after three years when the actual coal price, quality, quantity, source etc. is available.

It can be reviewed earlier if it is noted that current mechanism leads to a coal price that is unrealistic and detrimental to both the interest of consumers and the project sponsors. A consultant was hired in February 2018 to review the coal pricing adjustment mechanism.

Copyright Business Recorder, 2023