NEPRA suggests using local coal in Gwadar power plant

Questions delay in project execution that leads to increase in cost

ISLAMABAD:

The National Electric Power Regulatory Authority (Nepra) has questioned the planned running of 300-megawatt Gwadar coal-fired power plant on imported coal.

At a public hearing on Monday, the power-sector regulator held a heated debate and asked several questions about running the Gwadar power plant on imported coal rather than Thar coal.

Nepra chairman also threw questions about delay in executing the coal-power project that led to a hike in its cost owing to depreciation of the rupee against the US dollar. “Who is responsible for the delay,” he asked.

In its response, the project sponsor pointed out that Nepra took around 18 months to consider its petition filed in 2018 and another two years passed while finalising the power purchase agreement with a government agency.

The hearing was told that the government’s policy of banning imported coal-based power plants was another reason that caused the delay in making the Gwadar plant operational.

It was further informed that the project sponsor wanted to follow the API4 index for imported coal. API4, which is published by Argus/ McCloskey, refers to thermal coal based on free-on-board (fob) delivery at the Port of Richards Bay in South Africa.

An intervener suggested that the project sponsor should use API3 coal, which would enable it to consume indigenous coal as well.

Countering that, the project sponsor said that it would have to import lignite coal in higher volumes if it did not import API4 coal for its power plant.

However, Nepra emphasised that the project sponsor should not link its power plant with imported coal only and it should also be open to consuming local coal. “It should use around 20-30% indigenous coal in the Gwadar plant,” the public hearing was told. It was also pointed out that the project sponsor would have to lay a railway track for transporting Thar coal.

Nepra asked the sponsor to provide a due diligence report on the use of lignite coal and the cost of railway track within three weeks, so a formal decision could be made. When the hearing was told that the prime minister and the Planning Commission had given directives for setting up the Gwadar power plant based on imported coal, Nepra said that the high-ups did not ask for utilising coal with certain specifications.

Owing to the delay in implementation of the project, its cost is projected to rise 25% to $403 million. The project company requested a 21.43% increase in the return on equity or revision in tariff. It asked the regulator to permit an increase in the internal rate of return from the previously calculated 14% to 17%.

The company also asked for an increase in the engineering, procurement and construction (EPC) cost by $82 million.

Nepra initially permitted the EPC cost of $236.13 million, which was later raised to $321.41 million. The company has now requested another increase in the EPC cost.

In Gwadar, CIHC Pak Power Company Limited (CPPCL) is building the 300MW coal-fired power station. Additionally, the petitioner asked the regulator to eliminate the clauses that restricted the indexation of project cost to a particular Pakistani rupee rate, ie, 105/US dollar.

It suggested that a maximum 7% of debt servicing be applied to the Sinosure cost under the buyers’ credit insurance. According to the petition, financial guarantee should be included in the annual recurring charges at a rate of 0.9% of the guaranteed amount that applies to that year.

In contrast to the permitted sum of $10.50 million, the company requested for an increase in the project development and sponsor’s cost to $47.87 million.

Published in The Express Tribune, June 13^th, 2023.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.