As the affordability of power supplies declines, impacting demand and causing consumers to leave the national grid, concerns have arisen regarding the continued procurement of imported coal for power plants. This is despite the broader policy direction towards localization and import substitution advocated by the government and the International Monetary Fund (IMF).
Power plants are increasingly opting for long-term coal imports from a market with ample liquidity and availability, facilitated by streamlined spot import procedures by the National Electric Power Regulatory Authority (Nepra), which led to a significant drop in coal prices.
Former caretaker power minister Muhammad Ali initiated an investigation into coal purchases for the Sahiwal Coal Power Project, urging a report by March 15, 2024. However, these investigations seem to have been halted.
Questions regarding coal procurement were dismissed by Central Power Purchasing Agency (CPPA) CEO Rehan Akhtar during a public hearing, with a suggestion that evidence should be presented to Nepra. Nepra, in turn, declined to comment on the issue, referring to the former minister’s inquiry letter.
It is noteworthy that Nepra has limited regulatory authority over coal procurement beyond issuing guidelines and relying on invoices provided by CPPA for tariff calculations.
Records from Nepra indicate that the Sahiwal power project purchased coal at significantly higher prices compared to public-listed companies in other industries. The monthly coal requirement for the Sahiwal project is substantial, translating to considerable costs for consumers if similar practices are adopted by other power plants.
The implementation of Nepra’s guidelines for spot coal procurement led to multiple suppliers for the Sahiwal project, resulting in reduced electricity production costs. However, new suppliers faced challenges such as delayed shipments and unilateral penalties, allegedly aimed at discouraging competition.
In December 2023, the power producer entered into a long-term coal supply contract favoring a historical supplier, raising concerns about fair procurement practices and competition. This occurred without updated Nepra guidelines for long-term procurement, allowing the historical supplier to dominate without competition.
These developments reflect broader concerns over opaque tender procedures and lack of competition in procurement, leading to higher energy prices and reduced power consumption. Other power projects are also considering similar procurement strategies, potentially setting a precedent that deviates from market norms.
